The deposit insurance scheme (DIS), managed by the Nigerian Deposit Insurance Scheme (NDIC), was established in Nigeria in 1989 with the promulgation of an enabling legislation, Decree No. 22 of 1988.
Prior to the establishment of the corporation, the government had been unwilling to let any bank fail, no matter its financial circumstance and/or quality of management.
The government feared the potential adverse effects of a banking crisis on the banking system and in the economy, and therefore established the corporation.
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It was therefore established to administer the deposit protection scheme and to serve as a vehicle for implementing failure resolution options for badly-managed insolvent banks.
The DIS, being implemented by the NDIC, was designed as a risk minimiser, with the following mandates:
Deposit Insurance
This is perhaps the most significant and distinct activity of the corporation. As an insurer, NDIC guarantees the payment of deposits up to the maximum limit in accordance with its statute in the event of failure of an insured financial institution.
Bank Supervision
The corporation supervises banks so as to protect depositors, foster monetary stability, promote an effective and efficient payment system, and promote competition or innovation in the banking system. Banking supervision is the corporation’s essential element as it seeks to reduce the potential risk of failure and ensure that unsafe and unsound banking practices do not go unchecked.
Failure Resolution
One of the primary roles of the NDIC is to ensure that failing and failed institutions are resolved in a timely and efficient manner
Bank Liquidation
The bank liquidation option is always adopted by the corporation for banks that fail to respond to failure resolution measures, and liquidation process involves orderly and efficient closure of the failed institutions with minimum disruption to the banking system, cost-effective realisation of assets and settlement of claims to depositors, creditors and where possible, shareholders.
This is captured in Section 2 of the Nigeria Deposit Insurance Corporation Act 2006 that stipulates the functions of the corporation.
