Deposit Insurance: A Review of Concepts, Principles and Implications on the Nigerian Financial System

Abstract

A deposit insurance scheme is a vital element of any financial safety net in financial system. And for the scheme to attain its objectives, it should be properly designed, well implemented by regulators and properly comprehended and digested by the public. Hence, the need for the paper to review concepts, principles and implications of deposit insurance on the Nigerian financial system. The paper highlighted the fundamentals of deposit insurance scheme with an emphasis on the Nigeria Deposit Insurance Corporation (NDIC). Using desk research method, it was found that an effective deposit insurance scheme plays a significant role in contributing to the stability of financial system and the protection of depositors. Furthermore, both explicit and implicit deposit insurance schemes usually co-exist, most especially in times of financial crisis. Consequently, the third kind of deposit insurance scheme may be inferred to exist in reality. This third type could be termed hybrid deposit insurance scheme. The study, therefore, suggested that government should encourage hybrid deposit insurance system, a system where both governments allow the financial system to operate explicit deposit insurance scheme without neglecting the vital role of the implicit system of deposit insurance. Similarly, the government should place premium and continue to intensify efforts at creating an enabling environment not only for the deposit insurer to strive but for other elements of financial safety net.