Financial Markets and Regulations

Government Action in Financial Market

Government enters financial markets through: regulation,
Activity regulation, etc

Intervention,
The need to ensure safety and soundness

Personal business needs

Need to borrow to finance project

Financial Market Regulation

Why Government Regulation? Generally: To Promote Efficiency Enhance investor trust Ensure full disclosure To enhance the level of competition
To ensure efficient payments mechanism

Financial Market Regulation

Why Government Regulation?
To Maintain Financial Market Stability
Prevent market crashes Prevent Excessive Risk Taking by Financial Institutions

Financial Market Regulation

Why Government Regulation?
To Provide Consumer Protection Provide adequate disclosure Set rules for business conduct The inability of depositors to assess the quality of a banks assets can lead to panics. If depositors fear that some banks may fail, their best policy is to withdraw all deposits, leading to a bank run, even for good banks.

 Further, failure of one bank can hasten failure of others (contagion effect).

Financial Market Regulation

Why Government Regulation?
To Pursue Social Policies
Allocate saving to socially desirable areas
Housing Student loans

Financial Market Regulation

Restricting Foreign Activities in Domestic Market Controlling Level of Economic Activity

Forms of Regulation
Disclosure Regulation Financial Activity Regulation Regulation of Financial Institutions Regulation of Foreign Participants Banking and Monetary Regulation

Regulation and Supervision of the Financial System

Government regulation establishes a set of specific rules for bank managers to follow Government supervision provides general oversight of financial institutions Formal examination of banks books by specialists provides detailed information of the firms operations

Year

Major Development in the Financial Landscape

2004 The Banking Act 2004 (Act 673) replaced the bankingLaw1989 (PNDCL225) 2006 Secondary deposits reserves requirement (15%) was abolished

Foreign Exchange Act 2006 (Act 723) and Whistle Blowers Act 2006 (Act 720) 2006 came into effect Credit Reporting Act 2007 (Act 726) and Banking (Amendment) Act 2007 (Act 2007 738) were passed
2007 National Reconstruction Levy was abolished 2007 Re-denomination of the Cedi (10,000=GH1) 2008 Borrowers and Lenders Act, 2008 (Act 773) was passed

Non-Banking Financial Institutions Act, 2008 (Act 774), Home Mortgage 2008 Finance Act, 2008 (Act 770)
2008 Anti-Money laundering was passed 2008 Banks to comply with International Financial Reporting Standards (IFRS)

Bank of Ghana Raises Minimum Capital Requirements to $60m

2009