This study empirically examined the effect of Federal Government of Nigeria Deposit on the core banking activity in Nigeria. Specifically, it examined the effect of government deposit on credit to the private sector. It assessed the effect of government deposit on total deposit mobilized and analyzed the effect of government deposit on loans and advances granted by these banks. The study used time series secondary data obtained from the CBN statistical bulletin, 2015 edition. Inferential statistics (correlation and regression analyses) were used for data analysis. Specifically, correlation analysis established the relationship among the variables, while the regression analysis model was used for the estimation of the data. The results from the research confirmed that Federal Government deposit had a positive and significant effect on credit to the private sector as indicated by the regression analysis coefficients and p-values of 0.593(p=0.016) for total credit to private sector, 0.528(p=0.036) for deposit mobilized and 0.497(p=0.050) for loans and advances. Based on the findings of this study, banks are strongly advised to focus on the other sectors of the economy for deposit mobilization instead of relying heavily on Federal Government fund alone. Keywords: Deposit, Mobilization, Credit, Private Sector, Loans and advances, Money Banks