A bridge bank is a temporary bank organized by the regulators (CBN & NDIC) to administer the deposits and liabilities of a failed bank. Under the arrangement, the Nigeria Deposit Insurance Corporation (NDIC) is authorized to operate a failed bank for a period until a buyer can be found for its operations. The Bridge Bank option is a veritable tool of enhancing depositor protection and promoting confidence by ensuring seamless continuity of banking operations.
Clearly, when in the opinion of CBN, a NDIC-insured bank is in financial trouble, the CBN and NDIC may establish a bridge bank to;
Bridge banks must be chartered as national banks. To the extent possible, bridge banks are required to honor the commitments of the failed bank to its customers, and not to interrupt or terminate adequately secured loans.
Bridge banks are authorized to seek to liquidate failed banks, either by finding buyers for the bank as a going concern, or by liquidating its portfolio of assets, within two years, which can be extended by an additional year.Should the bridge bank fail to wind down its operations within the allotted time, the bridge bank must notify the Governor of the CBN of its intent to dissolve the bridge bank. Under this situation, the NDIC is appointed as the receiver of the bridge bank's assets.
In the Nigeria case, the Central Bank of Nigeria (CBN) on August 5, 2011, revoked the operating licenses of three banks including; Afribank, Spring Bank, and Bank PHB, which according to it, did not show enough capacity and ability for recapitalization. In their place, the CBN through the NDIC established Bridge Banks and transferred the assets and liabilities of the three affected banks to the Bridge Banks as follows;
1. Mainstreet Bank Limited (Afribank), 2. Keystone Bank Limited (Bank PHB), and 3. Enterprise Bank Limited (Spring Bank).
Under the new arrangement, MainStreet Bank Limited takes over the assets and liabilities of Afribank; Keystone Bank Limited assumes the assets and liabilities of Bank PHB, while Enterprise Bank Limited takes over that of Spring Bank.
Consequently, the Asset Management Company of Nigeria (AMCON) immediately acquired from the Nigeria Deposit Insurance Corporation (NDIC), the three Bridge Banks. Accordingly, AMCON injected N679 billion into the Bridge Banks to meet the minimum capital base of N25 billion and the minimum capital adequacy ratio of 15 per cent.
MainStreet Bank, which assumed the assets of Afribank, is to receive N285 billion, Keystone Bank, which assumed the assets of Bank PHB, will receive N283 billion and Enterprise Bank, which assumed the assets of Spring Bank, will receive N111 billion.
The acquisition and transfer of ownership of the Banks were effected through a subscription agreement with each of the three banks. By the subscription agreement, AMCON became the owners of the three banks, and provided sufficient capital to restore the banks to the level of capital adequacy stipulated for their operations.