SOME CAUSES OF BANK FAILURE

Abstract

This thesis explains why banks fail in general, and why Ghana Co-operative Bank Ltd (Co-op) in particular, failed. Many nations have experienced bank failures with very high costs which can lead to systemic risks. The causes of bank failure are numerous, in theory, and include regulation of banking activities such as forbearance; asymmetric information leading to a moral hazard problem and connected lending. Continued study of the various causes of banking instability is needed. The thesis extends that area of study with a case study of an African bank which failed. Co-op, a Ghanaian bank, is used to test the theories on some causes of bank failure. Before the liquidation, the appropriateness of preparing Co-op’s financial statements as a going concern was questioned by its external auditors. The framework used to assess the failure of Co-op is the findings of earlier empirical studies on this topic. Empirical evidence, using Co-op’s financial statements is tested against theory. Competitive theories on causes of bank failure are also used in the analysis. Most of the causes of Co-op’s failure are found to have been the subject of previous research.