How Germane is Banking Regulation and Supervision to Financial Sector Stability in Emerging Economies? Empirical Evidence from Ghana

Abstract

The purpose of this paper is to investigate the impact of banking sector regulation and supervision on financial stability in Ghana. The paper utilises a macro-level annual time series data covering the period 1990-2019 on financial development, bank regulation and supervision and other economic and institutional variables. The autoregressive distributed lags (ARDL) cointegration and estimation method is applied to estimate results. Having established the presence of cointegration, the results provide strong evidence that overall bank regulation and supervision contributes significantly to fostering financial stability in Ghana in the long run. Unbundling the bank regulation and supervision into its sub-components, the paper finds that capital regulation and transparency in financial statement practices exert the strongest impact on financial stability in Ghana in the long run. With regards to the covariates, the paper finds that corruption adversely affects financial stability whiles trade openness and human capital index improves financial stability. The paper provides some important policy implications and recommendations to consolidate and sustain the gains chalked so far in stabilising the financial sector in Ghana.