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BoG rejects decoupling supervision from functions

BY: Suleiman Mustapha
Governor of the Bank of Ghana, Dr. Ernest Addison
Governor of the Bank of Ghana, Dr. Ernest Addison

The Governor of the Bank of Ghana (BoG), Dr Ernest Addison, has rejected calls for the supervisory functions of the banks to be carved out of the central bank.

He said the current arrangement offered the BoG the benefit of reconciling developments in the macro-economy sector with happenings in the financial sector.

That, he explained, would enable the BoG to take the necessary and appropriate policy measures to protect depositors.

Speaking on the sidelines of the Monetary Policy Committee (MPC) news in Accra, Dr Addison said: “These are the type of linkages that the central bank is more effectively able to assess and analyse than when you have two institutions carrying out these functions.”

 The Managing Director of Cal Bank, Frank Adu, first triggered the call for a decoupling of the Banking Supervision Department from the Bank of Ghana measures to protect depositors.

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Speaking on the sidelines of the Monetary Policy Committee (MPC) news in Accra, Dr Addison said: “These are the type of linkages that the central bank is more effectively able to assess and analyse than when you have two institutions carrying out these functions.”

The Managing Director of Cal Bank, Frank Adu, first triggered the call for a decoupling of the Banking Supervision Department from the Bank of Ghana (BoG) to enhance its monitoring roles.

According to him, the department is currently under-resourced so it is unable to fully undertake its responsibility of monitoring and sanitising the banking sector.

BoG under staffed

Speaking to journalists after taking their turn at the ‘facts behind the figures’ at the Ghana Stock Exchange, Mr Adu maintained that the Bank of Ghana’s Banking Supervision Department was heavily under staffed.

“I don’t think the Banking Supervision Department has enough resources to carry out the supervision that we need in an economy which has about 400 non-bank financial institutions, 30 banks, and IFRS is coming, which is even more complicated. I’m serious. If the Banking Supervision Department wants to do their job properly, they need about 2,000 workers,” he argued.

Mr Adu stated that the central bank’s roles in modern economies were diverse so it required strategic moves to control the financial system.

Old conversation

But the Governor, who is not in favour of the call, recounted similar debates in 2000 and 2008 when there were heightened calls for the supervisory functions of the commercial banks to be given to a different agency because the central bank was overwhelmed with other functions.

“It’s an old discussion which we’ve had in this country way back in 2000 and 2008. At that time, we made a conclusion that we did not think it was necessary in the Ghanaian case,” he stated.

Financial crises

Citing the financial crisis in the UK to back his position, Dr Addison said prior to the crisis, the supervisory functions of the banks were separated from the Bank of England, which focused on monetary policy. A different agency supervised the banks.

“But the lessons from the financial crisis made it prudent for them to bring the supervisory role back to the Bank of England because they tend to have a broader view of the linkages between the macro economy and the financial sector,” he added.

Recurring debate

“These are the type of linkages that the central bank is more effectively able to assess and analyse than when you have two institutions carrying out these functions”, Dr Addison emphasised.

The BoG governor said it was a recurring debate and he was certain that an appropriate decision would be taken when the time was ripe.

“It came up 10 years ago, it’s coming up again and I think when we reach the point when we think that is the way to go, I’m sure the appropriate decisions will be taken,” he said.