This study examined the relationship between recapitalization and banks performance in Nigeria. In order achieve the objective of the study, a time series data was generated for 2000 to 2009 periods. The data was analysed using independent t-test and the study found that net interest margin, funding cost, significantly increases in post-recapitalisation period. On the other hand the study found an insignificant decrease in return on assets of banks after recapitalised. Therefore, the study concluded that the policy (recapitalisation) would subject banks (especially the small banks) in the country into severe liquidity crisis. The study recommended among others, that recapitalization policy should be undertaken with pinch of salt because the major obstacle facing Nigerian banks is not peculiar with shortage of capital. Therefore, only banks with acute shortage of capital should be coercing to increase their capital to enable them enjoy economic scale of operation. Similarly an Islamic banks should be established with branches in Muslims dominated areas, this is based on the experiences of the countries practicing such unique banking were not immune to global economic crisis.
