For years, the Bank of Ghana’s Monetary Policy Committee (MPC) has been at the forefront in the management of inflation; there is a need for a new dedicated body to guard against financial earthquakes.
Financial and banking consultant, Dr. Richmond Atuahene, is supporting the IMF’s technical report advocating for a Financial Stability Committee that holds the same status as the Monetary Policy Committee.
This Financial Stability Committee is to ensure that the health of the entire financial system stays at the top of the national agenda. This means that while the MPC is busy fighting inflation to maintain price stability, this proposed new committee would have one primary mission to limit systemic risk in the sector.
“The Bank of Ghana must establish a Financial Stability Committee on the same status like Monetary Policy Committee, which is the decision-making body that usually establishes a set frequency of formal meetings (often quarterly or semi-annually), so as to foster a timely and focused engagement,” Dr. Atuahene emphasized.
The Invisible Enemy: Systemic Risk
Dr. Atuahene explains that systemic risk is the danger of a widespread disruption in financial services, like credit, insurance, and payments, that can cause serious negative consequences for the real economy.
A classic example of this risk in action, according to the banking analyst, was the 2022/2023 Domestic Debt Exchange Program (DDEP), where losses suffered by lenders caused them to stop giving loans to businesses and households, ultimately depressing economic activity across the country.
He maintains that authorities failed to conduct the needed assessment of the exercise to ascertain how it would impact the entire financial ecosystem.
Why Same Status Matters
Dr. Atuahene argues that by elevating the Financial Stability Committee to the same status as the MPC, the Bank of Ghana can create a regular macroprudential policy-making process that meets quarterly or semi-annually to identify risks before they explode.
This committee would oversee the deployment of specialized tools, such as the Countercyclical Capital Buffer (CCyB), which forces banks to save more capital during good times so they have enough resources to continue lending during a crisis.
It would also tackle the “too big to fail” problem by placing extra requirements on large institutions, such as GCB Bank, whose potential failure could trigger what he describes as the “domino effect” through bank runs and the fire sale of assets.
“A dedicated financial stability unit within the central bank (or standing subcommittees or other authorities) can be charged with the analysis of systemic risks, the development and monitoring of systemic risk indicators appropriate for the jurisdiction, and the preparation of analysis and proposals for policy responses for consideration by the macroprudential decision-makers (Germany, India, Netherlands, UK, US),” he noted.
A Clearer Voice for the Public
A key benefit of this proposed player would be clearer communication with the Ghanaian public. Instead of burying stability news in interest rate announcements, the committee would have a distinct channel of communication and a dedicated webpage to tell the public exactly how it is protecting the nation’s wealth.
Ultimately, establishing this committee would provide a “second pillar” for the economy.
It ensures that while one hand of the central bank is managing the cost of living, the other is tirelessly guarding the very foundations of the banking sector to prevent another crisis.
