Question

The recent collapse of some banks and financial institutions and the merger of others in Ghana is proof that the financial system which consists of institutional units and markets that interact, typically in a complex manner, for the purpose of mobilizing funds for investment and providing facilities, including payment systems, for the financing of commercial activity remains unprotected in spite of the presence of the Regulator and a solid legal system backing it. From the discussion in class and available literature, examine some of the difficulties associated with the financial system and how these challenges have been addressed by the Banks and Specialized Deposit-Taking Institutions Act 2016 (Act 930). Are there any novel ways by which some of the challenges may be resolved in your opinion?

Answer 1

In any economy , banks play a significant role as financial intermediaries. This role has been highly regulated since the beginning of the bank's operations, which are licensing and periodically.

Bank regulation has often been supported by Adam Smith, who is not generally a fan of government controls, but strongly argued that "banks can sell every bill on demand."

It is not necessary to state the role of banks as financial intermediaries in providing demand for transaction services; the vulnerability to running and panic; the role of banks in creating and destroying cash; and the custody of the payment system. All deposits for the customers, whether they are current accounts, savings or deposits are referred to as bank debts. This means that the deposits are liabilities which the bank owes to its customers invariably. A bank uses the customers' deposits for credit, overdrafts, etc to individuals with whom it carries out business. To help banks serve their customers, they need a good balance between the deposits they deposit and the loans they have made. This is referred to as reserves.

Since most companies and individuals can predict their cash requirements safely, they can invest in illiquid projects. But banks can not know for sure how much of their debt is due on a given day because the majority of their debt is a deposit payable on demand. Banks can easily keep all their deposits in the boat before they can be canceled, but the money that is saved won't be worthwhile.

Because of these two acts, aggregates demand and supply are predictable as a result, the two banks live on when one depositor deposits cash, the other takes cash. Depositors who would have left their money on the bank would immediately withdraw it. With this in view, the bank can not find the money needed for them on one single day if a large number of depositors choose to withdraw a great deal in a single day, since some money has been transferred to other customers, like loans, overdrafts, etcetera, and has not been paid back. It is possible that the bank can come to it in a matter of days. The bank will not be paid back.

This intention was noble, but it is questionable why the framerers decided to diverge from that track either by accident or intentionally.

The Act sets out as a form of insurance to protect deposits for small depositors a deposit protection system. Section 3 of Law 931 on protection of small depositors from events insurable under the law and the development of a safe, sound and stable financial market is set out for the purposes of the scheme.

Indeed, the overall objective of the Act should have been to put the citizen 's weight as a basic element in a non plan of action, although one may argue that a safe shop and a free budgetary market from potential harms are all centered around citizen assurance. The Ghana Deposit Protection Act, 2016 and law 931 are obviously small investors and free of all dangers, but both are for public benefit. It is not a citizen-centered business center.

However, banks or specialized depositary institutions should be allowed to decide whether or not to join the GDPC in order that the deposits of depositors are properly protected in the free market. In certain jurisdictions, the financial institutions are given the option of joining a deposit protection company. However, their membership is compulsory because of the market forces, because depositors are aware of which DPC financial institutions and which ones do not and therefore financial institutions have no choice but to become members of DPC and to boldly advertise their membership.

The commercial banks in Ghana have not been able to achieve maximum results in terms of deposit mobilization. Mobilization of deposits by banks in urban areas tended to be more concentrated. This includes the rich with regular incomes and a few renowned companies who can save. Of course, most rural people and small business people have limited access to commercial banks. In many cases, these people use "Susu" collectors and rotary savers to save them. As far as the mobilizing of depots is concerned, these services face threats of fraud and the resulting mistrust of the operators. The advantages of extending banking services to these areas would be enormous, either extending bank branches where profitable or bank staff visit and train the local group leaders to mobilize their deposits using their expertise.

In Ghana investors are limited in sources of funds. There is a need for bank reforms that provide more efficient methods of mobilizing deposits from small-scale companies and subsistent farmers and expand the scope of their businesses to meet the entire population by providing a bank production base. The more banking services are extended to rural savers, the higher the amount of deposits and the supply of credit-equivalent funds "all other equals."

Commercial banks in Ghana face many challenges in mobilizing more deposits. Over 60 % of the population lives in isolated villages in rural areas, as observed in previous chapters. Therefore, it is ineffective for banking branches to provide financial door-to - door services for rural people in the city and in the south of the country.

In Ghana, the banking industry has not fully regained the confidence many customers have lost. This may in part be due to the attitude of bank employees to customers and the government action to control banks' operations. The Government's decision to withdraw fifty cedi notes from the currency in circulation at the start of the 1980s froze most depositors.

The unfavorable macro economic environment with high inflation and reserve requirements and associated low deposit earnings is another problem which militates against mobilization of deposits in Ghana. Hedging is inevitably a cautious measure that depositors take in a time of high inflation to enjoy future value appreciation. More deposits are therefore transferred to the purchase of real estate. In addition to high taxes and a 10-per cent development levy, the high reserve requirement of 44 percent consists of secondary and primary reserves and reduces loanable money volume, which consequently reduces investment returns and deposits.

Trade banks should now target rural majority. Rural majority. Where the usual way to expand banks was not helpful, self-help groups (SHGs) made up of like-minded professionals could be formed. Bank staff are then regularly employed to train them for simple bookkeeping, maintenance and depositing of accounts and other related business advice.

Ghana 's legal system is weak and subject to government and public opinion manipulation. In this situation, investors / depositors are not safeguarded for their money to invest. Good accounting practices, audits and other checks and balances would ensure that legislation is properly interpreted. Implementing rules to guide and protect depositors will provide depositors with a safe environment to improve their savings.