THE Governor of the Bank of Ghana (BoG), Dr Ernest Addison, says the establishment of the Ghana Deposit Protection Corporation (GDPC) comes as a big relief and a welcome addition to Ghana’s financial safety net apparatus, as it puts the nation in a state of readiness to better manage the failure of banks and deposit-taking financial institutions in the future.
Speaking at the 2019 International Association of Deposit Insurers (IADI) Africa Regional Committee Technical Assistance Workshop, Dr Addison said as a statutory institution tasked with the responsibility of formulating and implementing monetary policy towards ensuring price stability, guaranteeing financial stability and promoting economic growth, the Bank of Ghana as a matter of top priority take a keen interest in matters bordering on deposit insurance.
“As a matter of urgency and to ensure that in future, cost of resolution of banks do not spill over into the space of fiscal management and create macroeconomic imbalances, the Bank of Ghana recognizes how important a deposit protection scheme can immensely contribute to the stability of the entire macroeconomic architecture, including on financial stability.”
There is deep recognition all over the world that financial stability is a necessary precondition for promoting sustainable economic growth and ensuring the efficient transmission of monetary policy actions. This explains why Central Banks are entrusted with the authority to regulate banks and specialized deposit-taking institutions in order to protect public savings, prevent build-up of toxic assets which could have detrimental effects on the economy, prevent the adverse consequences of bank failures with the ultimate goal of ensuring a healthy financial system.
The Governor said the reality however, is that, in spite of the strict regulatory and supervisory regime of the Central Bank, banks and specialized deposit taking institutions could still fail due to poor management of the economy, poor lending practices, concentrations of credit, poor risk management practices, speculative runs on banks, non-bank sector activities with high degree of connectedness to the banking sector and other factors beyond the control of regulators.
To curtail the potential adverse effects of bank failures on state resources, and to enhance public confidence in the financial system, Dr. Addison said the established deposit protection schemes to protect depositors from losses in the event of the failure of a bank or specialized deposit-taking institution has become the norm. “As a matter of fact, at the last count, 145 deposit protection schemes existed around the world, with 92 of them being members of the International Association of Deposit Insurers (IADI); and I am sure many of the membership of the IADI are represented here today at this workshop.”
The IADI, in collaboration with the Ghana Deposit Protection Corporation and the Bank of Ghana put together the workshop to facilitate a close interaction among experts working in different areas of regulation and financial stability.