Abstract

This paper aims at investigating the fragility of banking sectors within the West African Monetary Zone and drawing inferences on the implications of the instability (or otherwise) of the banking systems for the proposed currency union in West Africa. As a matter of relevance and significance, the degree of fragility of the six banking sectors within the WAMZ was investigated so as to determine the extent to which this future currency union in prone to banking sector-induced financial instability which could bring the feasibility and sustainability of the currency union into jeopardy and doubt.
Drawing from the theoretical underpinnings of probit model, multivariate probit regression models of banking sector fragility were constructed for the banking sectors in the member countries of the WAMZ. Determinants of the probability of crisis within these banking sectors were employed in multivariate probit models specification with annual data of these six WAMZ countries spanning over a period of time between 1980 and 2013 in which event approach was adopted in identifying episodes of banking problems over this 14-year period. The study noted the stability (or otherwise) of the Nigerian banking sector as paramount, conveying crucial implications for overall banking sector of the proposed WAMZ, given the country's banking strength and presence across the whole sub-continent. From the general outcomes of the probability tests of banking fragility across the WAMZ, banking systems within the zone portend moderate stability which gives assurance of a stable monetary integration of the WAMZ for now.