Legal And Institutional Framework For The Operation Of Deposit Insurance Scheme

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Abstract

Deposit Insurance System (DIS) has become a key component of most financial systems worldwide because of the important roles it plays in protecting depositors as well as contributing to financial system stability. Since its establishment by the Nigeria Deposit Insurance Corporation (NDIC) Decree No. 22 of 1988, the NDIC, which is charged with deposit protection mandate has remained an active safety-net player in spite of many daunting challenges. The establishment of the corporation was bore out of necessity over two decades ago when the Federal Government conceived the idea of the implementation of the Structural Adjustment Programme (SAP) in which the deregulation of the banking system would constitute an unholden central pillar. The NDIC has been faced with numerous challenges that have hampered the effective and efficient implementation of the Deposit Insurance Scheme (DIS) in Nigeria. Thus, this research work aims at examining these challenges and to proffer sound recommendations. Firstly, the corporation is faced today with the challenge of execution of court judgement against its assets for liability of banks in liquidation. This is because courts normally regard the NDIC as a successor-in-title of failed banks. Secondly, the amount fixed as maximum deposit claim under section 20(1) of the NDIC Act, 2010 to all the classes of depositors and regardless of the amount of deposit lost by a depositor in the event of failure of a deposit-taking financial institution is not reasonable. Thirdly, the penalty provided under section 45 of the NDIC Act, 2010 for non-compliance with its provisions and failure to secure the authenticity of any statement submitted pursuant to the provision of Act is less punitive. Consequently, it is hereby recommended that the NDIC Act, 2010 should further be amended to bar courts from executing judgement against the assets of the Corporation as a result of its statutory mandate as a liquidator of failed banks. Secondly, reimbursement of deposit lost by a depositor in the event of failure of an insured deposit-taking institution should be made full as this will encourage savings. Finally, the penalty provided under section 45 of the NDIC Act, 2010 should be increased by making it more punitive so as to encourage compliance. For the purpose of this research work, the doctrinal method of research will be adopted.

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