Question

The recent collapse of banks and financial institutions and the mergers of others in ghana is proof that the financial system which consist 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 remain unprotected in spite of the presence of the regulator and a solid and a solid legal system backing it.from the discus 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 Institution Act 2016(Act 930). Are there any novel ways by which some of challenges may be resolved in your opinion? 10:22 PM /

Answer 1

Answer:

Banks play a significant financial intermediary person role in any economy. This role is vigorously directed from the initiation of the banking business, that is permitting, and routinely during the activities of the bank.

The guideline of banks have been bolstered by numerous individuals in times past including Adam Smith who, by and large isn't a fanatic of government controls however upheld unequivocally that "banks recover all notes in specie upon demand".

It is unnecessary to express the pretended by banks as financial intermediaries giving exchange services with demand obligation; their powerlessness to runs and panics; their job in making and devastating cash; and their custodianship of the payment system.In certainty, a bank's susceptibility to runs is the fundamental motivation behind why deposit protection is important. All client deposits, be they current, savings or time deposit accounts are called debts to the banks. That is, the deposits are liabilities that the bank constantly owes to its clients. A bank utilizes the deposits got from clients to advance loans, overdrafts and so on to people that it does business with. With the goal for banks to have the option to serve their clients, they have to keep up a fine balance between clients' deposits and the ones they have given out as advances or loans. This is called reserves.

Since most firms and people can securely foresee their money needs, they can place some into illiquid projects. Be that as it may, banks can't know for certain the amount of their debt will get due on some random day on the grounds that a large portion of their debt appears as deposit payable on demand. It is simple for banks to keep every one of their deposits in the vault anticipating clients' withdrawal yet vault cash don't procure interest.

Along these lines, banks endure when one contributor is depositor money, another is taking out money and in light of the fact that these two demonstrations are autonomously determined the total demand and supply are predictable. Contributors who might somehow or another have left their cash in the bank withdraw it at once. Considering the abovementioned, if most investors in a solitary day choose to withdraw huge amount of cash, there would be a complete chaos and the bank can't discover all the cash required for them on a solitary day since a portion of the cash have been progressed to different clients as advances, overdrafts and so on and have not been taken care of; the bank can come to it knees within a couple of days.

This goal of the Act was an honorable one however one marvels why the designers either unintentionally or deliberately chose to stray totally from that way.

The Act builds up a Deposit Protection Scheme as a type of insurance to ensure the deposits of small investors. Sec 3 of Act 931 which accommodates the object of the Scheme expresses that it is to protect small contributors from occasions that are insurable under the Act, and to help the improvement of a ssfe, sound and stable financial commercial center.

As a matter of fact, the general objective of the Act should have had a non-plan of action weight to the resident as a principal point, but one may fight that a store security and a liberated from any potential mischief budgetary market are all in all concentrating on the affirmation of the resident or citizen. It is clearly the small investors focus by Ghana Deposit Protection Act, 2016, Act 931 and liberated from any risk business focus don't concentrate on the resident anyway are both for government advantage.

Be that as it may, for the deposits of contributors to be appropriately ensured in a free market, banks and concentrated deposit-taking foundations ought to be permitted to choose whether they need to join this GDPC or do something else. In certain wards, the option of joining a Deposit Protection Corporation is given to the financial organizations. But since of the powers at the commercial center, their enrollment , has become obligatory in light of the fact that contributors are educated which regarding the financial foundations are individual from DPC and which ones are not and along these lines Financial Institutions are left with no decision than to become individuals from DPC and strikingly promote their participation or membership.

The function of the business banks in Ghana with respect to deposits activation has not yielded most extreme outcomes. Banks deposit mobilization has would in general amass more in the urban territories. This covers the rich with customary livelihoods and a couple of enormous trustworthy organizations who can spare. Obviously, a large portion of the rustic people and small scale businessman have restricted access to the business banks or commercial banks. In numerous cases these individuals resort to "susu" collectors and rotational savers for their sparing administrations. To the extent these administrations may accomplish their motivation of assembling deposits, they face threats of fakes and mistrust of operators. The advantages of stretching out bank administrations to these regions would be enormous either expanding bank offices where gainful or bank work force making intermittent visits and training of local group leaders capable of using bank expertise to mobilize deposits.

In Ghana there are constrained sources of funds to investors and looking at the predominance of the business banks working in 277 zones and instructing 70% of the financial business there is the requirement for bank changes that devise increasingly powerful methods of mobilizing deposits from these small scale undertakings and subsistent framers and extends their degree to meet the whole populace with bank items and services. The all the more financial administrations or banking services are reached out to the rustic savers, the more deposits will increase and “all other things being equal” flexibly of loanable supports will increase proportionately.

In Ghana, Commercial Banks are confronted with numerous difficulties in their desire to activate more deposits. As saw in the past sections, over 60% of the populace live in the rustic zones in confined towns. It in this way gotten cost incapable to have bank offices that can helpfully give door step financial administrations to the provincial occupants consequently, their focus in the urban and the southern part of the nation

The Banking division in Ghana has not completely recaptured the certainty that numerous clients lost; in this way making deposit fascination troublesome. This could be expected to incompletely the mentality of bank staff towards clients and the administration activity of controlling the tasks of the banks. In the mid 1980s most contributors had their deposits solidified on account of thegovernment’s decision to withdraw fifty cedi notes from the cash available for use

Another issue militating against deposit mobilization in Ghana is the horrible macro-economic condition with high inflation and save prerequisite and their related low profits for deposits. In a time of high inflation, hedging is definitely a reasonable measure contributors seek after so as to appreciate future appreciation about worth. Consequently, more deposits are diverted into the acquisition of land properties. The high hold necessity of 44% make out of both auxiliary and essential reserves notwithstanding high tax and a 10% development demand decreased the volume of loanable finances which consequently diminish rates of profitability and deposits.

Commercia banks should now focus on the provincial majority. Where the typical method of broadening bank offices has not been useful, there could be development of Self Help Groups (SHGs) made of individuals with comparable occupations. Bank work force would then be able to be sent occasionally to prepare them simple book keeping, account maintenance and depositing and other related business counsel.

The lawful framework in Ghana is feeble and dependent upon control from both the administration and the supposition leaders. Depositors/investors are not secured in such a circumstance to invest their cash. Good accounting techniques, auditing and different governing rules would guarantee smooth interpretations of the law. Authorizing guidelines to manage and ensure contributors or depositors would give a safe domain to investors to build their reserve funds.