*The Nigeria Deposit Insurance Corporation explains the decision is also to ensure good corporate governance practices, and not to provide incentive for moral hazards in the banking institutions

Isola Moses | ConsumerConnect

The Nigeria Deposit Insurance Corporation (NDIC) has stated that its Deposit Insurance Scheme (DIS) does not cover insider deposits, which are made up of deposits of Banks’ Directors and Staff.

ConsumerConnect reports the NDIC, in its official Twitter handle Wednesday, April 27, 2022, said that Bank Directors and Staff not being covered in its DIS was to create incentive for them to manage their institutions in a safe and sound manner.

According to NDIC, the decision was also to ensure good corporate governance practices and not to provide incentive for moral hazards.

NDIC on its verified account also clarified that in the event of bank failure, insider deposits would only be paid after all insured deposits had been fully paid.

“If they (Directors and Staff) know that their deposits are protected, it encourages excessive risk taking on their part.

“On the other hand, knowing that their deposits are not protected reduces excessive risk taking by them.

“Staff entitlements are settled along with creditors of the bank after all insured and uninsured deposits have been fully paid.”

The Corporation further said: “Meanwhile, individual shareholder deposits in the bank are separate from their shareholdings.

“Thus, in the event of a bank failure, those individual deposits are paid as insured deposits while shareholdings are settled after all insured and uninsured deposits, creditors and staff entitlements have been paid in full.’’

Deposit insurance is a system established by the government to protect depositors against the loss of their insured deposits, it stated.

The Corporation as well said that DIS was developed to protect uninformed small depositors from the risk of loss of their deposits.

It was also aimed at protecting the banking system from instability occasioned by runs and loss of depositors’ confidence.