Examination of the law relating to protection of bank deposits, liquidation and winding up of banks in Nigeria

• Author: Matthew Enya Nwocha
• Position: Ebonyi State University, Abakaliki, Nigeria
• Pages: 108-118

Examination of the law relating to protection of bank deposits,

liquidation and winding-up of banks in Nigeria

Senior lecturer Matthew Enya NWOCHA

1

Abstract

This p aper is written against the background of frequent bank failures, mergers

and winding-up of banks which have caused a great deal of apprehension in the minds of

bank customers, depositors and creditors in Nigeria. The paper therefore is aimed at

interrogating the legislative intervention in this regard and in particular the role that the

Nigeria Deposit Insurance Act has played in mitigating the uncertainty and hardship that

has been occasioned by incessant bank failures i n the country. The method of research here

is the use of the NDIC Act and other related legislation as primary sources of research in

addition to secondary sources such as works authored by legal scholars. The paper has

found that legislative intervention has reduced the incidents of bank failure and also offered

a number of protections to bank customers and their depo sits. The pap er has however,

discovered shortcomings in the law that need to be amended if bank deposits are to be

accorded adequate protection in the event of liquidation or winding up. It has therefore

recommended, among other things, the proportiona te repayment of bank deposits in the

event of liquidation, intensification of the work of bank examiners, and increased penal

sanctions on bank directors and senio r management staff whose actions cause bank failure.

The overall implication of the study is that when its recommendations are imp lemented

there would be greater confidence and stability in th e banking sector which would in turn

boost economic growth in the country.

Keywords: insured institution, liquidation, winding-up, bank deposits, ba nk examiner.

JEL Classification: K22, K34

1. Introduction

A bank is a financial establishment for the deposit, loan, exchange, or issue

of money and for transmission of funds.

2

The traditional role of banks consists of

financial intermediation, provision of an efficient payment system and an agency

for implementation of government monetary policies.

3

Banks are today considered

the most regulated institution in any nation. This is owing to the strategic position

that the banking sector occupies in economic development and, secondly, due to

imperfections in the market mechanism that mobilizes and allocates financial

resources to socially desirable economic activities which ultimately commands a

1

Matthew Enya Nwocha – Head of Department of Jurisprudence and International Law, Faculty of

Law, Ebonyi State University, Abakaliki, Nigeria. Email: nwochaenyaeni@gmail.com.

2

B. A Garner (2009) Black’s Law Dictionary, 9th ed. St. Paul, Minnesota: West Publishers.

3

A Adebayo (1999) Economics: A Simplified Approach, 2nd ed. Lagos: African International Publishing

Ltd; L. Afolabi (1998) Monetary Economics. Lagos: Perry Barr Ltd.