Banking System and Regulations

: A Case Study of Commercial Banks in Ghana

Abstract

This body of research examines how various regulatory and policy frameworks influence banking performance, risk, and efficiency in Ghana, providing insights relevant to other Sub-Saharan African economies. Together, the studies analyse the effects of financial liberalization, liquidity regulation, supervisory measures, and the balance between regulation and deregulation. The first study investigates the relationship between financial liberalization and compliance risk across 19 commercial banks between 2010 and 2022. Using the CAMEL model, it finds that while liberalization benefits operations and strengthens the financial system, it does not directly affect banks’ capital adequacy or management quality linked to compliance risk. Instead, asset quality, earnings, and liquidity significantly shape compliance risk, underscoring the role of national policies in guiding banks’ risk behaviours. The second study explores how liquidity regulation affects banks’ ability to create liquidity. Employing event study analysis, Generalized Method of Moments (GMM), and fixed effects models, it shows that stricter liquidity regulations, though essential for stability, constrain operational flexibility and may force weaker institutions out of the market through mergers or closures. This highlights the need for a balanced regulatory approach that ensures financial discipline without stifling liquidity generation or sector growth. The third study focuses on the supervisory regulation’s impact on banks’ cost efficiency. It finds that enhanced capital and liquidity requirements, while mitigating risky practices and supporting financial stability, impose operational costs that reduce efficiency. Smaller banks are disproportionately affected due to limited capacity to absorb these costs, whereas larger banks maintain stronger efficiency under the same conditions. These findings emphasize the trade-off between stability and efficiency and suggest the value of tailored supervision. The fourth study examines the broader debate on regulation versus deregulation and their combined effects on bank performance, measured by return on assets and equity. Results indicate that strong capital and liquidity standards improve profitability and resilience, while deregulation initially stimulates growth but ultimately introduces instability and compliance challenges, weakening performance. Smaller banks remain particularly vulnerable to both extremes—overly stringent regulation and unchecked deregulation. Collectively, these studies reveal that while regulation is crucial for maintaining financial stability and depositor confidence, its design must carefully account for banks’ operational realities, market structure, and risk-taking incentives. Well-calibrated policies—neither excessively rigid nor entirely liberalized—can promote innovation, sustain efficiency, and safeguard systemic stability. For Ghana and similar economies, the optimal regulatory environment is one that aligns prudential standards with development objectives, ensuring resilience while fostering competitive, innovative, and efficient banking sectors capable of supporting broader economic growth.

Date of Award	27 Jun 2026
Original language	English
Awarding Institution	University of Portsmouth
Supervisor	Shabbar Jaffry (Supervisor), Alexis Stenfors (Supervisor) & Oleg Badunenko (Supervisor)