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CONTRIBUTORY ROLE OF NIGERIAN DEPOSIT INSURANCE CORPORATION IN ECONOMIC GROWTH IN NIGERIA.

CONTRIBUTORY ROLE OF NIGERIAN DEPOSIT INSURANCE CORPORATION IN ECONOMIC GROWTH IN NIGERIA.

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CONTRIBUTORY ROLE OF NIGERIAN DEPOSIT INSURANCE CORPORATION IN ECONOMIC GROWTH IN NIGERIA.

Chapter one

1.0 Introduction

1.1 Background of the Study

A bank deposit insurance scheme (DIS) is a financial guarantee to depositors, particularly small ones, in the event of a bank failure. The bank deposit insurance scheme developed out of the need to protect depositors, especially the uniformed, from the risk of loss, as well as to protect the banking system from instability caused by runs and loss of confidence.

The financial sector has been singled out for special protection due to the critical role it plays in the economy, whether developed or developing. For a DIS to be effective in meeting the aforementioned goals.

The plan should be well-designed, well-implemented by the execution team, and well-understood by the public (Financial Stability Forum, 200).

A well-designed DIS contributes to the stability of insured deposits that are withdrawn from banks in response to rumours about their financial status.

The establishment of the Nigerian Deposit Insurance Cooperation (NDIC) in 1988 marked the beginning of an explicit deposit insurance scheme in Nigeria. The Nigerian Deposit Insurance Corporation is responsible for insuring deposits at all banks and other deposit-taking financial institutions licenced by the Central Bank of Nigeria (CBN).

It also provides financial and technical help in the interest of depositors to banks in difficulty, and in the event that a bank collapses, it guarantees the payment of insured deposits.

The corporation helps the Central Bank of Nigeria (CBN) develop and administer banking policies, among other things, to ensure sound banking practice. The policy was intended to strengthen the existing safety net by protecting depositors, hence increasing public trust in the banking system.

It was also considered an extra framework to act as a replacement for the existing government assistance policy (implicit insurance). Prior to the founding of the organisation, the government was unwilling to allow any bank to fail, regardless of financial situation, for fear of losing government support over time.

However, such direct supports (implicit insurance) could not be sustained under the structural adjustment programme implemented in 1986, which, among other things, deregulated the economy towards market orientation.

With the establishment of the Nigerian Deposit Insurance Corporation scheme (NDIC), the pain of bank failure unsuitable in a market environment was reduced to a minimum, while the moral hazard associated with direct government support was eliminated.

1.2 Statement of the Problem

Some public opinion, particularly the press, has been outspoken in its belief that the rate of proliferation in the banking industry is uncontrollable and that many new banks are doomed to fail.

It appeared that regulatory authorities such as the Nigerian Deposit Insurance Corporation (NDIC) were resolved to avoid failure by implementing prudential guidelines in addition to the existing banking schedule, which has put the government on high alert to avoid any crisis.

All that is required to assist the supervising authority in the critical evolution of the bank’s financial situation and facilitate the detection of problems in the banking industry include the problems that banks face.

Industry liberalisation has resulted in increased competition.

Increased systemic risk due to increased off-balance-sheet transactions.

The problems of bank distress that lead to the loss of money by the bank customer.

Fraud is widely frequent in the banking industry.

This research will explore the issues that the banking industry faces due to its significant impact on the country’s economic growth.

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