The Nigeria Deposit Insurance Corporation (NDIC), says its Deposit Insurance Scheme (DIS) does not cover insider credits of deposits of banks’ directors and staff.
NDIC, in its official Twitter handle yesterday said excluding bank directors and staff from the DIS is to ensure they manage their institutions in a safe and sound manner as well as good corporate governance practices and not to provide incentive for moral hazards.
The Corporation added that in the event of a bank failure, insider deposits would only be paid after all insured credits have been fully paid.
It said: “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. 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.”
According to NDIC, deposit insurance is a system established by the government to protect depositors against the loss of their insured deposits.
The Corporation said the DIS was developed to protect uninformed small depositors from the risk of loss of their deposits as well as to protect the banking system from instability occasioned by runs and loss of depositors’ confidence. (NAN)
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.