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The CBN in its search for a more robust, stronger and stable banking system, reeled out a 13 point reform agenda in July 6, 2004 direct among other things, that operators in the banking sub-sector should raise their capital base to N25 billion with full compliance by December 31, 2005. Although the minimum capitalization segment of the bank consolidation exercise has since been achieved, in the light of the above, the study aimed at evaluating the impact of recapitalization on the banking industry and the Nigeria economy. However, the objective of the study includes: Examining the extent to which Banking industry capitalization has boosted the Nigerian economy, whether the capitalization of banking industrial sector enhanced the banks lending ability. How the capitalization had contributed towards the growth and development of the Nigerian economy and to proffer recommendations, to ascertain this, banking industry capitalization was used to correlate with industrial sector Gross domestic product (GDP). The study covered a period of Eight years. Being an Expo factor research design, Regression Analysis was used to test the hypotheses using the following variables: Banks lending rates; Banking industry capitalization, manufacturing sector utilization rates, industrial sector Gross (GDP) of the economy. The study found that, the capitalization of banking industry has no significant positive impact on the growth and development in the Nigerian economy as in a bid to survive in the highly competitive banking industry. On the other hand, it was found out that, the capitalization enhanced banks lending ability within the period. However, this was as a result from the test model, although, the capitalization of banking industry cannot enhanced banks lending, if capitalization of Banking industry had no significant positive impact on the growth and development in Nigerian economy. I. Background Of The Study The ultimate strength of a bank lies in its capital fund. Banking, like any other business, requires adequate capital to function effectively (Nwankwo, 1991:45). Though by nature, banking is a highly leveraged industry, the degree of leverage averaging 88% and 95% in the United States, compared with between 24% and 70% of non financial firms (ibid). life of a bank like any other business, it plays the role of a cushion for losses resulting from crystallization for the various risks a business entity is exposed to (Imala, 2004:74). Adequate capital is required to maintain public confidence by standing ready to absorb unexpected or unusual losses not absorbed by normal earnings (Nwankwo, 1991:45). Thus, it has often been said that the primary function of bank capital is to protect the depositor against loss. In the Nigerian environment bank capital legislation did not start, until the introduction of banking ordinance in 1952. According to Uche (1998:30), before 1952 there was no legal minimum capital requirement for banks operating in the Nigeria colony. Despite this fact, foreign banks were able to operate in the Nigeria colony without any banking failure. However, things changed with the advent of indigenous banks, most of who were poorly capitalized, poorly staffed and in most cases interested with fraud. In the opinion of the writer, the above tripartite malaise of the indigenous banks contributed to their failures This led the colonial government to invite G.D Paton, a consultant for the bank of England, to investigate the Nigeria banking environment With the possibility of introducing regulation. A minimum share capital was subsequently recommended. The outcome of that legislation was disastrous. This was rendered by "Uche" (1998:31) thus "the resultant effect was that banks that could not meet up with the dead line for re-capitalization failed mass failure with at last 17 indigenous banks failing in 1953/54. Ever since, there have been recurring bank capital legislations. These are; 1958 The share capital for foreign banks increased to £20,000. That of the Indigenous one remained unchanged 1962 The minimum share capital for indigenous bank increased from £12,500 to £250,000. This was a 1,900 percent increment, with 7 years of grace period. 1969 Sec. 6 of Banking Act increased the share capital to £300,000 and £750,000 for indigenous and foreign banks, respectively The Impact of Capitalization on the Banking Industry and the Nigeria Economy (An Evaluation) www.iosrjournals.org 93 | Page 1988 It was raised to N 10m 1990 N20m 1991 N50m 2000 Nlbn 2002 N2bn The banks were still setting for the new minimum capital requirement, when the big bang Twenty five billion naira (N25bn) capitalization was announced, This represents an increase of 1250 percent from that of two billion naira (Uche, 1998:31-32." Eke, 2005:1). What were the reasons for the continual increments have any desired effect on the economy and the industry? Reports have shown that, with any increment on the banks capitalization, course such inflation that makes nonsense of the increase (if Uche, 1998:32). To what extent has the minimum capital legislation prevented bank failures? How has depositors fared in the aftermath? What are the likely consequences of the recently introduced, N25bn minimum capital legislation? These and many more is what this study is set to enquire. II. Statement Of The Problem A clear understanding of the role of banks in the economy is to improve the standard of living of its citizenry and impact positively on the economy by providing financial resources to absorb unexpected losses. A major engine of economic growth of any country is its capital adequacy, hence without adequate capital from the bank the economy may be starved of the long-term funding for sustainable development. Having been acquainted with the fact that bank contribute to the development of any nation, therefore, it is pertinent to carry out a performance evaluation of such an important sector industry with regards to its contribution towards the nations development. Objectives Of The Study Since the economy of any country rest on the banking system's contribution, it then means that, adequate capital is required to maintain public confidence which should have a lasting effect on the economic indicators like the bank credit to the economy GDP and industrialization (Industrial sector GDP). Therefore, the specific objectives of this study are; i. To examine the impact of capitalization of banking sector in boosting the economy ii. To determine how capitalization of banking sector is enhancing the lending ability of banks, iii. To ascertain the rate of growth in the development of recapitalization of banking sector in the Nigeria capital market, iv. To recommend what can be done to maintain or enhance efficiency in the contribution of banking sector. RESEARCH HYPOTHESES The following hypotheses form the frame work for carrying out this study. Hypothesis 1 The banking industry capitalization does not have a positive and significant impact in the Nigeria economy. Hypotheses II The capitalization of banking industry has not enhanced the banks lending to the industrial sector in Nigeria. Hypotheses III Banking industry capitalization has not contributed to the growth of Nigeria economy. Hypotheses IV The development of the banking industry capitalization does not depend on the economic stability in Nigeria. THE SCOPE OF THE STUDY This research work will cover all the activities in the capitalization of banking industry between the period of 2001 and 2008 fiscal years. III. Review Of Related Literature Issues In Bank Recapitalization In Nigeria In a special session with the bankers committee, on Tuesday 6 th , July 2004, the CBN governor announced the upward review of banks capital base from N2billion to 25billion effective 31 st day of December 2005. This raised lots of questions. However, has come to be what led to the sudden policy change of the CBN? According to Ede (2004:1), the underlying motive behind the N25billion capitalization is mergers and Acquisition, to force consolidation and strengthen the system. He contended that the initiative was a proactive one, rather than wait for our banking system to experience the Malaysian crisis before doing it. The The Impact of Capitalization on the Banking Industry and the Nigeria Economy (An Evaluation) www.iosrjournals.org 94 | Page Malaysian crisis though finally contended by the Malaysian financial system came as a result of the Asian financial crisis of mid to later 1990's. In the final analysis, the soul of the recapitalization policy lay on the fact that big and strong banks are needed as the key players in a world. According to Ede (ibid:2) this economy is about $65billion an economy of this size cannot depend on banks with N2billion capitalization. A good example of ABC Bank of South African which has a total assets of over $50billion as compared to a total asset of all banks in Nigeria, of $22billion. This means that all banks in Nigeria are not equal to one bank in South African. Reasons For Consolidation According to Ajayi (2005:5.) consolidation is in some instance driven by regulation, the generic factors influencing a potential acquirer or buyer encompasses economies scale growth in market share, need to enter a new market etc. according to Pandy (2002:1098) it is believed, that mergers and acquisitions are strategic decisions leading to the maximization of a company's growth by enhancing its production and marketing operations. However, it could be summed up that consolidation are motivated by four key economic factors namely, economies of scale and scope, potentials for risk diversification as well as bank managements personal incentives (Ajayi:2005:5). 1. Economies of scale: Economies of scale may arise when increase in the volume of production leads to reduction in the cost production per unit (Roundey, 2002:1100). Consolidation may help to expand the volume of products without a corresponding increas