THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR THE OPERATION OF DEPOSIT INSURANCE SCHEME IN NIGERIA

THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR THE OPERATION OF DEPOSIT INSURANCE SCHEME IN NIGERIA

Background of the Study

In recognition of the strategic importance of a stable banking system to an economy, various institutional arrangements have evolved overtime to foster banking stability; one of such initiatives is the establishment of a deposit protection scheme which is aimed at curtailing the attendant economic disruptions that typically follow bank failures. Among the consequences of these disruptions is the loss of deposits held in the failed bank and the inclination of the depositors of other banks to make panic withdrawal of their deposits in a manner capable of precipitating a run on those otherwise sound banks1. Banking business is so important to the economy of any nation that nowhere in the world is that business left to the whims and caprices of the business owners (shareholders) without appropriate regulation and supervision. There are so many reasons for this. Firstly, the bank plays the role of financial intermediation; where surplus fund are mobilized in form of deposits by the depositors and such funds are then channeled to entrepreneurs in the form of loans and advances for business development, giving rise to employment, wealth creation and growth. That is why banking is often described as the engine room of the economy. Thus, when the banking system collapses, the economy also collapses. The second reason for regulation and supervision is that the share capital brought to the banking business by the shareholders is usually a small fraction when compared to the volume of funds mobilized by the banks from depositors who perhaps are really the most significant stakeholder in banking business. Thus, a bank with share capital of N25 billion in the current dispensation can mobilize up to N1 trillion of depositors funds. The main objectives of regulation and supervision are to promote safe and sound banking system, minimize the risk of failure, provide protection for depositors in the event of failure thereby promoting public confidence in the system and ensuring the stability of the financial system, a necessary ingredient for a vibrant economy2. There are several legislations regulating banking business in Nigeria3. The banking system is, no doubts, the most regulated industry in most countries.

Given its role in the financial system, deposit insurance scheme aims at ensuring financial guarantee to protect depositors in the event of a bank failure and also to offer a measure of safety for the banking system. However, in a broader sense, deposit insurance serves as one of the complementary measures employed by the monetary authority for effective management and orderly resolution of problems associated with both failed and failing deposit-taking financial institutions. Bank Deposit Insurance Schemes developed out of the need to protect depositors, especially the uninformed from the risk of loss and to also protect the banking system from instability occasioned by runs and loss of confidence.

TOPIC: THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR THE OPERATION OF DEPOSIT INSURANCE SCHEME IN NIGERIA

Chapters: 1 - 5
Delivery: Email

Number of Pages: 75

Price: 3000 NGN

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