Can BoG Introduce A Deposit Insurance Policy To Protect Public Deposit Amidst Insolvency?

Per historic account, the banking industry in most countries often and commonly experience Bank failures every year. It is therefore not news for African countries like Ghana to experience the same. The only problem with the Ghana ones is the communication approach of the Bank of Ghana anytime a bank or a financial institution attain insolvency or Bankruptcy and also the Policy Reforms after or during financial crises in Ghana don’t seems to be nailing the problems.

Pardon me to use U.S banking system as my case study. In 2016 and 2017, U.S recorded 8 and 5 bank failures respectively, and 51 bank failures in 2012. Undoubtedly between 2001 and 2018, there have been more than 3 bank failures every year in America.

The good thing for U.S banking system now is that, there is a Deposit Insurance policy that protect and pay backs depositors in times of crises and more importantly there is no advancepublic notice when a financial institution is closed and take over s happen in America. And I agree with such communication strategy of the bank regulators in America because it actually conserve the public confidence in their financial sector.

Do We Have A Deposit Insurance Policy?
Bank Of Ghana, per my research haven’t enacted any form of Deposit insurance policy to protect public deposits with banks in Ghana although they have introduced other measures such as the capitalization in attempt to prevent bank insolvency among many others. But after my personal desk study on the banking system of the United States of America, it baffled me why we haven’t at least taken a clue from one of their policies that they have introduced to restore confidence in their banking sector and also protect depositors’ funds during their economic and financial crises in U.S decades ago.

Debatably, if Bank of Ghana main purpose of introducing capitalization is to protect public deposits with banks and thrift institutions in Ghana then I’m sorry to say, we have lost it because no matter what you do, we will have banks and microfinances going insolvent or bankrupt every year but the question is, when these bank failures come, how secured are the public deposits? The capitalization can’t solve this aspect of the problem.

Allow me to walk you through why the U.S bank regulations introduced the FDIC and since then no depositor has lost a penny of any FDIC-insured funds

My Research Interest For BoG:
Banks regulation in the U.S.A is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In U.S, banking is regulated at both the federal and state level.

All National banks, Foreign banks and Thrift institutions in U.S.A must be a member of the Federal Reserve System and are regulated , chartered and supervised by The Office of the Comptroller Of Currency (OCC) unlike Ghana, where Bank of Ghana takes charge of all that. Thrift institutions are financial institutions that obtain the majority of its funds from the savings of the public. The OCC is an independent bureau within the United States of America Department of the Treasury that was established by the National Currency Act of 1863. It is headed by the comptroller of currency, who is appointed by President and approved by the Senate just as the Governor of Bank of Ghana is appointed by the president of Ghana.

The Federal Reserve System (Fed) is the central banking system of the United States of America and was created after a series of financial panics led to the desire for central control of monetary system in order to alleviate financial crises. The Federal Reserve Bank is the bankers’ bank and the regional bank of the Fed. They are 12 in total, one for each of the 12 Federal Reserve districts in U.S

Any time banks goes insolvent, it may possibly be as result of economic crises of the country they find themselves. During the U.S economic and financial crisis in 2007-2008, over 65 U.S Banks became insolvent and have been taken over by the FIDC since the beginning of 2018.

The FDIC (Federal Deposit Insurance Corporation) was actually created by the 1933 Banking Act to restore trust in the American banking system during the great depression in 16^th June, 1933.The FIDC is an independent agency of the United States government that protects the funds depositors place in banks and saving associations. FDIC insurance is backed by full faith and credit of the U.S government. Since the FDIC was established in 1933, no depositor has lost a penny of FDIC-insured funds. FDIC insurance covers all depositors’ accounts. The FIDC also examines and supervises certain financial institutions for safety and soundness, perform certain consumer protection functions, and manages receiverships of failed banks.

With the use of BankFind platform, American citizens can easily see if his or her bank is covered by FIDC before he decides to lodge his or her money there.

The Unibank, UT and Capital One Bank Case
During the U.S economic and financial crisis in 2007-2008, over 65 U.S Banks became insolvent and have been taken over by the FIDC since the beginning of 2018. This resultant statement suggest that Economic Crises and Financial crises are often directly proportional thus any time the economy of a country is in crises , the financial institutions may face challenges likewise any time financial crises hit a country the economy goes into crises.

Ghana is obviously in its financial and economic crises for the past 5years and we can’t be exempted from bank failures as we have seen with the UT, Unibank and Capital one bank among many other microfinances but the big question again is how did we handle it and what informed policies and Act have we enacted to salvage depositors funds which seems to be the core of the problem?

I really want to see the comeback of Unibank because they carry streams of potentials that can create jobs and fiscal space for businesses to thrive in years to come in Ghana

I admit that BoG has every right to take over any banks or microfinance in such an insolvent state and they did nothing wrong if those Release by BoG are indeed found to be true. My honest concern is how we handle it in the public domain and the sort of policies and ACT we enact to curb such problems.

Rescuing Our Economy, Salvaging Indigenous banks is key

It is healthier for our economy if we enact Act and Informed Policies that will help to salvage our own indigenous banks and microfinances that may find themselves in insolvent state. The reason is that, our businesses in both the formal and informal sectors rely strongly on the indigenous banks and microfinance in Ghana and when we begin to introduce capitalization beyond the strength of the banks and microfinances, they either tend to collect more deposit to meet the capital requirement and later becomes balance sheet insolvent (technical insolvency) or fail to merge and give way to more foreign banks that will not hold the interest of our local businesses.

You can disagree with me, but the part reason why the economy is struggling and unemployment is going up is partly because of the collapse of banks as well as microfinances and the dying confidence in the financial industry. An economy with insolvent financial sector create business hardship. And this where we have gotten to. How do we cross this bridge? I know one day the Deposit Insurance Policy will be enacted and utilized to restore the public confidence.

As I always say the Microfinance is the most transformational tool in Africa and we can’t run a microfinance without having banks, indigenous banks. We can all thrive in an economy that have informed policies that supports the financial institutions and not measures and actions that collapse them.

Justice Offei Jr.
Entrepreneur I Oil & Gas Consultant I Business Coach I Speaker & Columnist

E: [email protected]