: Regulations Within the Ghanaian Banking Industry: a Case of Increasing the Minimum Capital Requirement
CHAPTER ONE
INTRODUCTION
1.1 Background
Banking reached colonial Africa through the activities of colonial merchants, and the first bank in West Africa was established in 1894, that is the British Bank for West Africa (BBWA), which extended its operations to Ghana soon after in 1896.
In Ghana, the Bank of Ghana is responsible for the banking sector. The Bank of Ghana was established in 1957 to oversee the health of the nation’s financial sector. Presently the Bank of Ghana is empowered by the banking act of 2004, Act 673 (amended in 2007) and the Bank of Ghana Act 2002, Act 612 to regulate banks in Ghana. The mission of the central bank is “to pursue sound monetary and financial policies aimed at price stability and create an enabling environment for sustainable economic growth.” In maintaining a stable banking industry, the Bank of Ghana ensures that banks playing a part in the pursuit of its goals are well leveraged to withstand any unforeseen circumstances. One way the central bank does this is to ensure that banks have capital adequacy to a certain level through the regulation of the minimum capital requirement. The issue of the minimum capital requirement, its increases and implications has always been an issue of hot debates amongst economists, and even politicians.
The minimum capital requirement is the minimum level of security below which the amount of financial resources should not fall (European Parliament legislative resolution of 22 April 2009 on the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance – recast). Currently, most countries base their regulation of minimum capital requirement on the Basel II accord developed by the Basel Committee on Banking Supervision, which is a set on international guidelines for banks’ adequacy ratio. The Basel II is an effort by international banking supervisors to update the original international
INTRODUCTION
1.1 Background
Banking reached colonial Africa through the activities of colonial merchants, and the first bank in West Africa was established in 1894, that is the British Bank for West Africa (BBWA), which extended its operations to Ghana soon after in 1896.
In Ghana, the Bank of Ghana is responsible for the banking sector. The Bank of Ghana was established in 1957 to oversee the health of the nation’s financial sector. Presently the Bank of Ghana is empowered by the banking act of 2004, Act 673 (amended in 2007) and the Bank of Ghana Act 2002, Act 612 to regulate banks in Ghana. The mission of the central bank is “to pursue sound monetary and financial policies aimed at price stability and create an enabling environment for sustainable economic growth.” In maintaining a stable banking industry, the Bank of Ghana ensures that banks playing a part in the pursuit of its goals are well leveraged to withstand any unforeseen circumstances. One way the central bank does this is to ensure that banks have capital adequacy to a certain level through the regulation of the minimum capital requirement. The issue of the minimum capital requirement, its increases and implications has always been an issue of hot debates amongst economists, and even politicians.
The minimum capital requirement is the minimum level of security below which the amount of financial resources should not fall (European Parliament legislative resolution of 22 April 2009 on the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance – recast). Currently, most countries base their regulation of minimum capital requirement on the Basel II accord developed by the Basel Committee on Banking Supervision, which is a set on international guidelines for banks’ adequacy ratio. The Basel II is an effort by international banking supervisors to update the original international
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