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.

CHAPTER ONE: INTRODUCTION

1.1       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.
An efficient Deposit Insurance System (DIS) has been recognized in many jurisdictions as one of the fundamental components of the financial safety-net. Accordingly, many countries all over the world are embracing this concept by the establishment of one form of deposit insurance authority or the other in a bid to insulate their economies against the devastating effects of systemic bank failure.
The Nigeria Deposit Insurance Corporation (NDIC) is the agency of government saddled with the statutory responsibility of administrating the Deposit Insurance System (DIS) in Nigeria. The NDIC has its origin in the report of a committee set up by the Central Bank of Nigeria in 1983. The committee in its report recommended the establishment of a Deposit Protection Fund. Consequently, the NDIC was established through the promulgation of Nigeria Deposit Insurance Corporation (NDIC) Decree 19884.
The scheme offers some form of deposit protection to depositors such that their confidence in the banking system is not eroded in situation of failures of depository institutions. It also provides government with a framework for intervention and sterilization of the disruptive effect on the economy in the event of failures of deposit-taking institutions5.
Two alternative approaches have been adopted in implementing a deposit protection scheme. One is the Implicit Deposit Protection System (IDPS) and the other is the Explicit Deposit Protection Scheme (EDPS). The IDPS is a discretionary approach adopted by the monetary authorities for propping up some failing deposit – taking institutions in the system. There is no
The government is at liberty to decide whether or not to grant any relief to depositors and the amount of such relief. Government exercises its discretion in this respect, based on its assessment of the consequence as of either intervening or not6. Other features of the IDPS include lack of any formal rules and procedures for intervention, absence of any prior funding arrangement and the use of an ad-hoc administrative structures.
This approach is fraught with considerable uncertainties for both the depositors and deposit-taking institutions. But this very weakness ironically provides the greatest justification for its adoption. This justification is premised on the need to maintain market discipline on the part of the depositors and avoid moral hazard on the part of the deposit-taking institutions. Whilst market discipline refers to the depositors taking interest in the financial conditions of the institutions in which they place their deposits and reflecting this in their decisions through withdrawing deposits from the poorly managed ones, moral hazard relates to excessive risk taking by banks knowing that their deposits have been insured7.
The alternative arrangement is an Explicit Deposit Insurance Scheme (EDIS) created by a legal instrument. The enabling statute usually states the objectives of the scheme and other operational guidelines relating to issues like ownership, funding, extent of deposit protection, membership, resolution options compatible with stated objectives, etc. Thus, EDIS provides a formal framework with clear cut out rules and procedures for providing deposit protection, assessment and management of failed and failing deposit – taking insitutions8.
In Nigeria, we practice the EDPS. Its adoption was necessitated by our experience in bank failure. The law which established the NDIC, that is, the NDIC Decree No. 22 of 15th June, 1988 was repealed due to manifest loopholes which include poor drafting style, rigid provisions that hindered responsiveness to the need of stakeholders. For example, premium payable by banks and insurance coverage could not be varied without amending the law, the appointment of the NDIC as a liquidator of failed insured institutions was not automatic, but was subjected to the Companies and Allied Matters Act (CAMA) tortious court processes, failure to recognise deposit insurance as an exclusive mandate of a deposit insurer, inadequacy of enforcement powers, absence of protection for directors and employees of the NDIC against adverse claims for actions or decisions taken in their official capacity, etc.
In 2006, precisely on the 22nd December, 2006, the Nigeria Deposit Insurance Corporation (NDIC) Act, 20069 was passed into law to correct the lacunae and inadequacies of its predecessor. This law, for similar reasons, was further amended as the Nigeria Deposit Insurance Corporation (NDIC) Act, 201010 (Hereinafter referred to as the Act), all in an effort to position the Corporation to achieve its statutory mandate.
In spite of these developments, there are still inherent lacunae in the current Act that are serving

1.2       Statement of the Problem
The DIS as a safety-net measure is aimed at protecting banks from failure and depositors from the risk of loss of their hard earned money in the event of bank failure. In Nigeria, the DIS is administered by the NDIC. In the discharge of its statutory responsibilities, the NDIC had in the past two decades been able to take meaningful and significant steps in deposit insurance practice. It has also cooperated with other safety-net players to ensure that the nation?s financial system is stable.
In spite of these achievements, there are lingering legal issues and challenges facing the corporation today which are hindering its progress. These include the following lacunae in the NDIC Act; firstly, the most fundamental problem of the Act that requires urgent remedy is the execution of judgement against the assets of the NDIC for liability of banks in liquidation. The corporation had been faced with attachment levied on its assets in execution of judgment obtained against banks in liquidation. That anomalous situation was the result of the corporation?s role as liquidator of failed banks in Nigeria. The courts had regarded that role as making the Corporation the successor-in-title of the failed bank, which should not be the case. For example in Nigeria Deposit Insurance Corporation (Liquidator of All States Trust Bank Plc) v. Tempo Mills Ltd. & Co11, the corporation filed an appeal to challenge the judgement of the Federal High Court, Enugu which was really against the closed bank but it was the corporation?s head office that was subsequently attached on account of that judgement.
In Alhaji Yusuf Ozegya v. NDIC (Receivership of Savannah Bank of Nigeria Plc)12 instituted by the Landlord to Savannah Bank, despite the fact that the defendant was sued in official capacity, the High Court of Abuja issued an order to levy execution on the personal assets of the corporation on account of the judgement granted in favour of the Landlord. The corporation had to pay the judgement debt to court to avert removal of the corporation?s assets to court by the Sherriff. Interestingly, throughout the duration of the case, the corporation was neither the receiver nor liquidator of Savannah Bank as the bank had gotten its licence restored by the Court of Appeal.
Secondly, the amount fixed as maximum deposit claim under section 20(1) of the Act to all the classes of depositors and regardless of the amount of deposit lost by a depositor in the event of failure of an insured deposit-taking institution is not reasonable.
For example, by the provision of the section, if a man losses N200,000,000.00 in  the event of failure of a licence bank, he is only entitled to a maximum reimbursement or claim of N200,000.00 from NDIC. This, to say the least, is not reasonable and can discourage savings which is capable of stifling the economy of investable funds.
Thirdly, the penalty under section 45 for non-compliance with the provisions of the Act is inadequate.
These problems have greatly affected the effective and efficient administration of the DIS in Nigeria and need urgent redress so as to enable the Corporation achieve its statutory mandate.

1.3       Aim and Objectives
The broad aim of this research work is to examine the inherent lacunae in the present legal framework that regulates the operation of the DIS in Nigeria, that is, the NDIC Act, 201013 and to proffer sound recommendations for its amendment.
The researcher believes that effective implementation of the DIS in Nigeria largely depends on adequate framework.
This research work also seeks to provide an in-depth appraisal of the mandates of the NDIC with a view to examining how it has contributed in protecting bank depositors and ensuring sound banking system in the over two decades of its existence in Nigeria.

1.4       Scope and Limitation of the Research
The scope of this research work is limited to the stated objectives, consequently, the examination of the inherent lacunae in the present legal framework that regulates the operation of the DIS in Nigeria and to proffer sound recommendations for its amendment.
The research work will also focus on the operation of DIS in Nigeria alone. It also seeks to examine some challenges facing the corporation today that have served as clock in the wheel of its progress as well as the prospect of the corporation.

1.5       Research Methodology
For the purpose of this study, the doctrinal method of research will be adopted. By doctrinal method, primary sources such as statutes and case laws and also secondary sources which comprise of journals/articles, text books, magazines, etc will be consulted14.
The use of statutes and case laws are obviously for the purpose of obtaining the applicable laws and judicial pronouncements on the subject of this study. Whereas the use of the secondary sources is basically to reflect on the way some writers on the subject of the research attempted to analyze the issues at stake.

1.6       Justification of the Study
A stable and prosperous economy is central to the development of any nation and this cannot ordinarily be achieved without first achieving a very strong and reliable banking system that can earn the confidence of its depositors, customers and the general public at large. This research work will assist in this direction as it will identify the role of the NDIC in enhancing the confidence of the depositors, ensuring sound banking system and also proffer sound recommendations to the lacunae in the present legal framework, that is, the Nigeria Deposit Insurance Corporation Act, 201015.
It will also take a critical look at the provision of the Act to see the extent to which it has protected the interest of depositors and customers of such banks in cases of failure, so that adequate recommendation made by the research will assist the government in the formulation of its economic policies that will help in achieving stable and prosperous economy.
Moreso, the study will essentially assist the government in its current policy and economic reform, more particularly the banking sector reform, as well as the stakeholders in the financial market and the general public.

1.7       Literature Review
The Nigeria Deposit Insurance Corporation (NDIC) had in the past 20 years faced numerous legal challenges in the course of performing its statutory functions. In an attempt to address some of these challenges, the corporation successfully pushed for the repeal of the NDIC Decree No. 22 of 15th June 1988 which established it. Similarly, several authors and academicians have written numerous books to proffer solutions and recommendations to some of these challenges.
Ogunleye16 dealt extensively with the topic of this research. It did not leave any stone unturn on the issue of mandate, powers, governance structure, legal issues in implementing deposit insurance in Nigeria, Deposit insurance funding and fund management. It also discussed the challenges facing the corporation, prospects of the corporation, etc. However, it did not discuss some of the inherent manifest lacunas of the Act which have hampered the effective and efficient operation of the corporation. This research work aims at examining the deficiencies of the Act and to proffer sound recommendations that will aid the government in repositioning the corporation and in its policy formulation.
Ogunleye17, on his part again articulated brilliantly the concept and relevance of deposit insurance and its role in promoting financial system stability in Nigeria.
He also examined the Nigerian banking industry and the substantial structural changes it had undergone over the last three decades due to series of reforms in terms of the number of institutions, ownership structure, as well as depth and breadth of operations.
Like the first literature, this literature did not discuss anything relating to the challenges and problems of the NDIC which have immensely affected the implementation of the DIS in Nigeria, let alone the legal inadequacies and lacunae in the previous and present legal framework that regulate the operation of the DIS in Nigeria.
Alheri18, serves as a veritable literature on the issue of distress resolution options and legal processes against a bank in liquidation. The paper, in its entirety, focused solely on the role of the NDIC in resolving issues relating to distress in the banking system.
Some of the measures the NDIC usually adopts which are discussed in the paper include; Open Bank Assistance, Closed Bank Resolution and the Bridge Bank Resolution. The paper did not also leave any stone unturn in the area of liquidation process. However, rather than using the NDIC Act, 2010 since the paper was written in 2012, the author used the amended NDIC Act, 2006 in presenting her argument. Similarly, the author failed to discuss cases of banks that were bridged by the NDIC and CBN due to liquidity challenges and their failure to meet the CBN capitalization requirement.
Jubril19, x-rayed the ongoing clash between the CBN and the NDIC over the proposed amendment of its statutes and the need for both agencies to cooperate with each other in order to safe-guard the banking sector and considering their common history. He traced the history of the establishment of the NDIC to CBN in 1983 following the turbulence in the financial industry that made thousands of depositors lost their hard earned life savings.
He also opined that from inception, the core mandate of NDIC is deposit insurance as contained in section 2(1) of the NDIC Act, 2010 hence it should focus on that alone rather than seeking amendment to its Act for powers to make it a parallel/coordinate regulator of banks as CBN.
This move, according to him is fraught with danger and could be a recipe for financial instability.
Though, the author?s argument sounds very persuasive, it is wrong to restrict the NDIC?s role to only deposit guarantee. To adequately protect depositors, it is pertinent for the NDIC to exercise supervisory powers over banks.
The corporation supervises bank so as to protect depositors, foster monetary stability, promote effective and efficient payment system, promote competition and innovation in the banking system.
Umoh20, highlighted the contribution of the NDIC to the stability of the financial system which can be examined within the context of its activities in the discharge of its statutory mandate.
According to him, some of the activities undertaking by the Corporation with the aim of insulating the financial industry from destructive runs and instability include deposit guarantee, bank supervision, distress resolution and bank liquidation. The author neglected to examine the relevance of adequate legal framework to the corporation in the discharge of its statutory mandate.
Umoh21 again enumerated the key role the Corporation played upon its establishment in tackling the problem of previous incessant bank failures in Nigeria and the measures which it took.
Similarly, it also examined the legal challenges inherent in the commencement legal framework as well as other challenges which hampered the progress of the Corporation. In the same vein, it also examined the steps which the Corporation took in addressing some of these legal challenges such as the amendment of some Sections of the NDIC Decree No. 22 of 1988 in 1997.
Afolabi22, discussed the benefits of a consolidated banking system in Nigeria and observed the fundamental problems in the financial industry. He also examined the role of the NDIC as a financial safety-net.
Ologun23 tried to highlight the several factors that eroded the public confidence reposed in the Nigerian banking system which usually result in bank failure; including bad management of the banking industry and economic recession.
While Umoh24, on his part discussed the concept of deposit insurance and the potential role of the scheme in any financial system, it also examines the relevance of the scheme in Africa drawing on the experiences of African countries that had adopted the explicit type of deposit insurance scheme. He also explain the benefit that African countries would gain from the introduction of deposit insurance  scheme most especially, in terms of having efficient and competitive financial system, where he stated thus;
“Competition is a vehicle for achieving efficiency since, in a competitive banking system, banks are forced to operate efficiently if they are to keep their customers and remain in business”.
Manu25 examined the critical issues to be considered before establishing deposit insurance scheme, such as the nature and historical background of the financial system of a given country in order to assess the model of the scheme that could be suitable for the system.
Ogunleye26 examines the banking consolidation programme being implemented by the Central Bank of Nigeria (CBN) vis-à-vis the challenges posed to the NDIC as a provider of financial safety-net.
Peter27, traced the evolution of the financial system in Nigeria, establishment and administration of the NDIC, operational activities of the NDIC, prospect and challenges of the NDIC. But did not examine the pivotal role the legal framework plays in the effective operation and implementation of deposit insurance scheme in Nigeria.
Ademola28, discussed the importance of the banking industry to the economic prosperity of a country. He opined that considering the role banks play in the mobilization of savings, they impact on every sector of the economy. He also articulated the reasons for the establishment of the NDIC, its functions, the history of bank and the causes of bank failure in Nigeria. In his conclusion, he discussed his findings and made recommendations.
It should be noted that, none of the above literatures examine the legal constraints facing the NDIC such as inadequate legal provisions that have hampered the effective and efficient operation of the NDIC in Nigeria. And the inherent manifest inadequacies of the Act or any other relevant legislation in order to find out the effectiveness of the mechanism put in place by such laws for the implementation of the Deposit Insurance Scheme in Nigeria.

1.8       Organizational Layout
Chapter one of the research work contains the general introduction of the research, background of the study, statement of the problem, scope of the research, aim and objectives of the research, research methodology, justification, literature review and organizational layout.
Chapter two will trace the evolution of deposit-taking financial institutions in Nigeria. Although, there are diverse views by authors and academicians as to when modern banking operations started in the territory now known as Nigeria.  However, one common denominator expressed by all of them is the fact that it was introduced by British merchants who transacted business on the coast of West Africa during the colonial era.
The need for the establishment of a deposit taking institution was largely connected to the increase in the volume of trade and commerce in the then Lagos colony. The establishment of the first deposit taking institution in Lagos was the brain child of Mr. George William Neville. This was as a result of the setting up of regular shipping between Liverpool in England and the West African Coast, movement of cargo and the increased importation of British Silver coins in large boxes continued unabated. It was against this background that the initiative for the establishment of a bank was taken in the Lagos office of Elder Dempster & Co. Ltd. Elder Dempster was the first shipping firm, which ran the regular steamship voyage between Liverpool and the West African Coast29.
This chapter will also discuss the historical development of insurance in Nigeria. In most African countries particularly in Nigeria, modern commercial insurance is less than 100 years old. The British colonial government introduced insurance business into Nigeria in 1910. Traditionally, though some forms of social insurance existed in part of the Nigeria society long before their arrival. This was in a form of mutual and social schemes, which evolved through the extended family system, aged grades and clan union typical of Africa culture.

The chapter will also discuss the formation of insurance contract. In most respect, an insurance contract is the same as any other commercial contract and to that extent, to be valid and enforceable, it must possess all the essential features of a contract.
For example, there must be an agreement base on offer and acceptance, the contract must be legal in all respect, there must be either a valuable consideration or form and there must be an agreement, base upon an equality of knowledge of all the material facts, that is consensus ad idem30.
Lastly, the chapter will also discuss problems and challenges of deposit institutions in Nigeria as well as the distinction between deposit insurance scheme and the conventional insurance system.
Under chapter three the historical development of deposit insurance in Nigeria will be discussed. The Nigeria Deposit Insurance Corporation (NDIC) has its origin in the report of a committee set up in 1983 by the Board of the Central Bank of Nigeria to examine the operations of the banking system in Nigeria. The committee in its report recommended the establishment of a Depositors Protection Fund. Consequently, the Nigeria Deposit Insurance Corporation (NDIC) was established through the promulgation of Decree No. 22 of 15th June 1988.
This was part of the economic reform measures taken by the then government to strengthen the safety net for the banking sector following its liberalization policy and the introduction of the 1986 Structural Adjustment Programme (SAP) in Nigeria. The reasons for the establishment of the Nigeria Deposit Insurance Corporation were also looked into. They include; lessons of prior history: experience of previous bank failures in Nigeria (1947 – 1952), lessons from other countries, anticipated consequence of economic actions on banking supervision, increased competition among banks and change in government bank support policy31.
It will also examine the governance structure of the Nigeria Deposit Insurance Corporation, powers and authorities of the corporation, the legal framework of the NDIC in Nigeria since its inception, deposit insurance funding and fund management will equally be examined and the issue of failed bank resolution in Nigeria.
Chapter four will discuss the challenges and prospects of the Nigeria Deposit Insurance Corporation. In the discharge of its mandate, the NDIC had in the past two decades been able to take meaningful and significant steps in deposit insurance practice.
It had also cooperated with other safety-net players to ensure that the nation?s financial system was stable. Be it as it may, the prospects for better performance of the NDIC remain very bright. Also, given the experience of the corporation in the last twenty years, there were also several lessons to be learned. Such lessons would be used to improve upon the corporation?s efforts at discharging its mandate in the most efficient and effective manner.
Finally, chapter five brings the research to a conclusion with the summary, findings and observations as well as our recommendations and suggestions for effective implementation of the DIS in Nigeria.