THE IMPACT OF DEPOSIT INSURANCE SCHEME ON BANK INTERMEDIATION IN NIGERIA
The impact of the 2008 global financial crisis on many economies has re-affirmed the need to protect the financial system from shocks, both from endogenous and exogenous sources. Consequently, policymakers and regulators in many countries have implemented various drastic regulatory measures to prevent their financial systems from meltdowns, and to avert deep economic downturns. Measures adopted include government takeover of banks or capital injections, interest rate cuts, subsidies to ailing sectors, and bank deposit guarantees. Among all these, the deposit insurance scheme has generated much interest among the academia and policy makers. Literature abounds with studies conducted on the implications of deposit insurance scheme for different economies. However, most of these works have been concentrated on the developed world, such as the United States of America and the Eurozone economies. It is, therefore, against this background that this study determined whether the presence of a deposit insurance scheme improves the quality of bank deposits in Nigeria, assessed if the presence of a deposit insurance scheme has any significant impact on the quality of bank assets in Nigeria, and examined if the presence of a deposit insurance scheme exacerbates systemic risk in the Nigerian banking industry. The study adopted the ex-post facto research design. Annual time series data were collated from Central Bank of Nigeria (CBN) Statistical Bulletins and Nigeria Deposit Insurance Corporation (NDIC) annual reports for the period, 1990 – 2012. Three (3) hypotheses, which state that (i) the presence of a deposit insurance scheme does not have a positive and significant impact on the quality of bank deposits in Nigeria, (ii) the existence of a deposit insurance scheme has no positive and significant impact on the quality of bank assets in Nigeria, and (iii) the presence of a deposit insurance scheme has no positive and significant impact on systemic risk in the Nigerian banking industry; were formulated and tested using the Ordinary Least Squares (OLS) regression model where total bank insured premium (TBIP) was adopted as the independent variable and total banking sector deposit (TBD), total bank assets (TBA) and bank systemic risk (BSR) were the dependent variables. Growth rate of gross domestic product (gdpgr), inflation rate (Infr), interest rates (intr), exchange rate depreciation (xrdepr) and ratio of M2 to foreign reserves (M2fr) were used as control variables. Descriptive statistics on the dependent, independent and control variables were also computed and graphed to complement the regression results. Findings from the study revealed that the presence of deposit insurance scheme had positive and significant impact on bank deposits and total bank assets of deposit money banks in Nigeria. However, the presence of deposit insurance scheme had positive but non-significant impact on the systemic risk of deposit money banks in Nigeria. The study thus concludes that the presence of deposit insurance scheme in Nigeria is a major boost to financial institutions in Nigeria and should be supported by government through the enhanced powers of the regulatory authorities. This will ensure increased confidence in the Nigerian Banking sector by all stakeholders, especially depositors. We recommend, amongst others, that there should be a risk (cost) minimizer mandate for the Nigerian Deposit Insurance Corporation. This will contribute to the stability of the financial sector thereby reducing systemic risk.