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 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 Specialised 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

The whole phenomenon of savings, finance, operations by companies and investments is possible only because of financial institutions that provide us with financial services through financial markets by dealing in various financial instruments. Now, this includes Central Bank in charge of various other big or small banks under management and vigil, guided financial companies that act as intermediaries, industries and companies and small or big investors. Everything in a system is inter-connected and to make sure that such a system runs smoothly, obviously, every thread of the industry must hold tight. A loose-end from any side may result in a catastrophe that has a ripple effect and creates a bad example and opens a room for further disasters with a new face. In other words, Supervision - Control - Regulation are all equally essential and significant.

Violation and breach of the sanctity of the above mentioned literature has proved to be disastrous for Ghana's Financial System in particular. The major causes behind the fallout of the major banks not only in Ghana but all around the world are more or less similar.

• Poor Corporate Governance
• Inadequate Risk Management Department
• Incompetent Treasury Management Department
• Issuance of Loans to unworthy entity/entities only to get converted to painful NPAs
• Poor supervision by Central Bank
• Serious Regulatory lapses in the system
• Inadequate laws and punishments given to the violators and defaulters to set a firm example

All these challenges have been addressed by the Banks and Specialised Deposit Taking Institutions Act 2016 (Act 930) in a very aggresive yet graceful manner which includes authority of the Bank of Ghana to prescribe a minimum paid-up capital unimpaired by losses, including accumulated losses or adjustments to be maintained for banks and Specialised Deposit taking Institutions, Penalty for non-compliance with capital requirements, maintainence of Reserve Fund, Restrictions on declaration and payment of dividend, Maintenance of liquid assets on a consolidated basis, Additional liquidity requirement for additional risk, Notification of non-compliance with minimum liquidity requirements, Penalties for non-compliance with liquidity requirements, Maintenance of Net Open Position etc. Apart from these, several significant changes were brought in that granted Central Bank of Ghana special powers and might to have their hands on Corporate Governance, Extra Disclosures bringing transparency in the system, Intervention in Key meetings and policies of the companies, limits and restrictions on financial exposures, transactions with affiliates, insiders and foreign exchange businesses. Various other Accounting systems were changed and stricter norms in Accounting were adopted.

ALL in all major changes and policy variation measures were adopted under this Act which is an example not only for Ghana but all major Financial System in the world on ways to frame and tackle the issues cropping up in the system and their effective eradication without affecting confidence and trust of investors, companies and other major economy - driving entities.