Abstract
A Deposit Protection or Insurance as the name suggests is intended to provide a sustainable funding to reimburse depositors should an insured act(s) be triggered. Over time, it helps build confidence in the financial ecosystem thereby facilitating a strong and robust financial system. Ghana enacted a Deposit Protection Act in 2016 (the “Act”) and added some new sections in 2018 aimed at protecting small depositors, and create faith and stability in the financial system. However, the Act in its present form can neither protect small depositors nor build any faith and stability in the financial system in Ghana. It is not suggested that a deposit insurance alone can create a stable financial system but the part envisaged by the Deposit Protection Act in creating a stable financial system is seriously undermined by sections in the Act itself. Keywords : Deposit Protection Act, Ghana DOI: 10.7176/JLPG/105-06 Publication date: January 31 st 2021
Highlights
This article originally written in early 2018 would first address the institutional and practical challenges that the Ghana Deposit Protection Act, 2016, Act 931 was to face before the establishment of the Ghana Deposit Protection Corporation (GDPC).It has always been identified that banking systems has often been in turmoil
It is not suggested that a deposit insurance alone can create a stable financial system but the part envisaged by the Deposit Protection Act in creating a stable financial system is seriously undermined by sections in the Act itself
Most of the issues directly impact on the financial health of Ghana and solutions elsewhere are brought home for implementation. “[During and after the] recent [global financial crisis between 2007-2008], some countries introduced new deposit insurance schemes and others extended the scope and coverage of their existing schemes to restore confidence in their banking systems.”8 For instance, Australia and Singapore introduced explicit deposit insurance to their banking systems for the first time, whereas Spain and the US increased the limit on the amounts that are covered by deposit insurance
Summary
It is needless to state the role played by banks as financial intermediaries providing transaction services with demand debt; their susceptibility to runs and panics; their role in creating and destroying money; and their custodianship of the payment system.7In fact, a bank’s susceptibility to runs is the main reason why deposit protection is necessary. Banks would lose their most important income, which is interest on loans and other investments This is why centuries ago banks learned a wonderful secret of keeping just a handful of the cash at hand to pay off demand deposit.. If the loans and overdrafts are not paid or not paid on time, the bank may be in trouble It is for these reasons that a certain form of deposit insurance or protection is required to save depositors from losing their life time investment. In acknowledging that the picture painted in the preceding paragraphs have not been experienced in Ghana before, (at least in recent times), it follows that deposit protection is not the only medicine to cure bank failures as recent events in Ghana attest
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