Deposit Insurance System

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What is the purpose of deposit insurance?

To reduce interest rates

To encourage risky bank behavior

To protect depositors in case of a bank failure (correct)

To make banks fail

How is an explicit deposit insurance system different from an implicit one?

Explicit systems offer higher compensation limits than implicit ones

Explicit systems are not regulated, while implicit ones have strict regulations

Explicit systems are secretive, while implicit ones are transparent

Explicit systems are established by legislation, while implicit ones have no formal system (correct)

Why is an explicit deposit insurance system preferred over an implicit one?

It clarifies the authorities' obligations to depositors (correct)

It encourages risky bank behavior

It offers higher interest rates to depositors

It guarantees unlimited compensation to depositors

What does an explicit deposit insurance system clarify compared to an implicit one?

The authorities' obligations to depositors Signup and view all the answers

Which option best describes an implicit deposit insurance system?

No formal system in place Signup and view all the answers

What was the primary goal of the Structural Adjustment Programme (SAP) initiated by the government in 1986?

To reduce distortions caused by previous administrative policies Signup and view all the answers

Why was there an anticipation of increased competition among banks following the liberalization of bank licensing?

To enhance the performance of individual banks and the banking system Signup and view all the answers

What is the main reason for the establishment of an explicit deposit insurance scheme with supervisory powers over insured institutions?

To protect depositors against losses from bank failures Signup and view all the answers

What potential adverse effects on confidence in the banking system did the government fear following a bank failure?

Negative impact on confidence in the economy Signup and view all the answers

Before the establishment of the Corporation, what was the government's approach towards failing banks?

Government propped up inefficient banks to prevent failures Signup and view all the answers

How has the Corporation made it possible for both institutions (CBN and NDIC) to operate concerning licensed banks?

By enabling routine and special examinations of licensed banks Signup and view all the answers

What was one of the factors that led the Federal government of Nigeria to establish the NDIC?

The failure of twenty-one out of twenty-five indigenous banks in Nigeria Signup and view all the answers

When did the Central Bank of Nigeria commence its operations?

1959 Signup and view all the answers

Which country established a nationwide deposit insurance scheme in 1924, serving as an example for other nations like Nigeria?

Czechoslovakia Signup and view all the answers

What effect did the FDIC have on the American financial system despite ongoing bank failures?

Painless impact on the American financial system Signup and view all the answers

What led to the urgent need for the establishment of a Deposit Insurance Scheme in Nigeria?

High rate of indigenous bank failures between 1947 and 1952 Signup and view all the answers

Which event led to a significant number of indigenous bank failures in Nigeria by 1954?

$21$ out of $25$ indigenous banks failing Signup and view all the answers