Principle 11 of the International Association of Deposit Insurers (IADI) Core Principles (CP 11) states that deposit insurers are required to have available to them all funding mechanisms necessary to ensure the prompt reimbursement of depositors’ claims. One of the Essential Criteria under CP 11 is that the size of the fund, the “fund reserve ratio”, should be based on “clear, consistent and well-developed criteria.” Currently, the Nigerian Deposit Insurance Corporation (NDIC) sets its reserve ratio based on a formula that may not properly consider future risks as it is based partially on the level of insured deposits in banks deemed to be in distress. This paper presents a framework to assist the Nigerian Deposit Insurance Corporation (NDIC) in determining the target deposit insurance fund for Nigeria’s largest commercial and merchant banks. The framework takes into consideration the role that credit and liquidity risks play in bank failure as well as recent changes to bank regulation and crisis management in Nigeria.