(a) Following the DDEP (2022-2024), which impaired bank holdings in government securities, BoG’s Notice No. BG/GOV/SEC/2023/05 urged recapitalization to restore capital adequacy ratios (CAR) above 13%. Recommendations to the Board include:

1. Retained Earnings: Use internal profits, feasible as it doesn’t dilute ownership. High approval likelihood if audited financials show sustainability, as per Act 930; e.g., GCB Bank’s post-cleanup strategy.
2. Rights Issue to Existing Shareholders: Issue new shares, feasible for strong banks like Ecobank Ghana. BoG approves easily if prospectus complies with CRD and enhances CAR without excessive leverage.
3. Private Placement or Equity Injection from Parent/Investors: Attract foreign direct investment, as Stanbic did in 2023. Feasible with BoG vetting for fit-and-proper criteria; high approval if it boosts forex reserves amid cedi volatility.
4. Subordinated Debt or Tier 2 Instruments: Issue bonds convertible to equity. Moderately feasible; BoG approves under Basel III if it meets loss-absorption criteria, but scrutinizes interest rates for stability.
5. Asset Sales or Securitization: Sell non-core assets like properties. Feasible for quick liquidity; BoG approves if it doesn’t impair operations, as seen in Access Bank’s post-DDEP divestments.
6. Government Support or Bail-in Mechanisms: Seek BoG facilities, low feasibility post-cleanup due to fiscal constraints, but possible via targeted interventions.

Overall, internal sources are most feasible for swift BoG approval, emphasizing practical plans with stress tests.

(b) Regulatory Capital is the minimum capital banks must hold as mandated by regulators like BoG under Basel II/III and CRD, to absorb losses and ensure solvency. It is computed as Tier 1 (core: common equity, reserves) + Tier 2 (supplementary: subordinated debt, hybrids), risk-weighted per assets (e.g., CAR = Eligible Capital / Risk-Weighted Assets ≥13%). Relevance in ALCO: Guides asset-liability decisions, e.g., limiting high-risk loans to maintain ratios, supporting liquidity and income via diversified portfolios. In Ghana, post-DDEP, ALCOs at banks like Fidelity used this to prioritize low-risk treasuries.

(c) Economic Capital is the internal estimate of capital needed to cover unexpected losses at a confidence level (e.g., 99.9%), based on the bank’s risk profile, using models like VaR for credit, market, operational risks.

Distinctions:

• Purpose: Regulatory is mandatory for compliance; Economic is voluntary for internal risk management.
• Computation: Regulatory uses standardized BoG formulas; Economic employs advanced models tailored to the bank.
• Scope: Regulatory focuses on pillar 1 risks; Economic includes all (e.g., strategic, reputational).
• Level: Economic often exceeds Regulatory for conservatism; e.g., in Stanbic Ghana, Economic Capital buffered DDEP impacts beyond BoG minima.
• Application: Regulatory for reporting; Economic informs ALCO pricing and limits.