LAW AND PRACTICE OF BANKING

LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

Question

This morning, you walked into the Office, as the Branch Manager, and heard a customer’s voice unusually louder and walking into the conference room; you find your RM and Madam Hannah Adjei, an SME Customer with the Customer’s Statement of Account for September2019.

You invited to your Office; the RM who tells you:

That Madam Hannah Adjei is making an unnecessary claim about a Debit Interest Charge on Account when the Account Balance has been in Credit throughout the month.
That the RM adds that the Interest Charge was not raised by the RM – it was the computer which debited the Customer’s Account.

You printed a copy of the Statement of Account, and you noted the following:

That a Cheque for GHs400.00 was paid against uncleared effects during the month.
That the RM does not understand the features of transactions on Account.
That the RM does not understand the constituents of the Banking Balance on the Statement of Account.

Required: a) You have therefore decided to have a discussion session with your Staff along the following: i. What is a Transaction? ii. What are the elements in any given transaction? b) Bearing in mind the constituents of the Banking Balance on the Customer’s Account and various types of transactions: i. State the various constituents and their meaning. ii. What caused the Debit Interest Charge on the Account? Examiner’s Requirement a) The “Transaction ” defined i. What is a Transaction? The Candidate must state that a “Transaction is a business dealing between 2 or more people, time bound”.

In the Banking business, the transaction shall be a record of movement of funds form one person to another (or from one Account to another account), which shall always be “time bound”; and any such record shall be made in accordance with Accounting Rules.
The Bankers’ function of “Accepting Deposits”, results in a Credit transaction:
For example, proceeds of a Cheque Deposit shall be available as a “Value Dated” Credit transaction, based on the Bankers’ Clearing House Rules and Clearing Cycle, where the proceeds shall be received in the future.
The function for “Honoring the Customer’s Instruction to pay” shall result in a Debit transaction.
For example, honoring a Customer’s Cheque shall be a Debit transaction, and in the ordinary course of business, the Cheque shall be honored against sufficient Cleared funds and/ or agreed Overdraft Limits in accordance with Joachimson v. Swiss Bank Corporation.

ii. What are the elements in any given transaction?

The Candidate must state the elements of a transaction as follows:
A Transaction has 2 dates (the Transaction Date and the Value Date).
An Originator (source account to be debited).
Beneficiary (destination account to be credited).
An amount.
Underlying need for the transaction.
Reference/transaction ID, etc.
The 2 dates are the:
“Transaction Date” as date for processing the “transaction”; and the
“Value Date” which, based on the underlying need, shall determine when the funds in the transaction must become cleared and therefore, available to the beneficiary. The “Value Date” is an element of the future, as in the Clearing Cycle, Forward Exchange Contracts, Fixed Deposit Receipts which will mature sometime in future.
In the Banking business, a transaction is always recorded in accordance with Accounting Rules; and therefore, there is no such thing as a transaction with a date before today in any Banking transaction!!

b) Constituents of the Banking Balance Bearing in mind the constituents of the Banking Balance on the Customer’s Account and various types of transactions: i. State the various constituents and their meaning. (6 Marks). Examiner’s Requirement

Cleared funds and agreed Overdraft Limit (C), in Joachimson v. Swiss Bank Corporation, the Paying Banker was said to have a duty to pay the Customer’s cheque against sufficient Cleared funds or agreed overdraft limits; Cleared funds are available as “Cash” and/or non-Cash transfer of funds from one account to another;
Uncleared Effects (UE); where, by the ruling in United Dominion Trust $v$. Kirkwood(1966), the Collecting Banker shall collect proceeds of cheques “value dated”, and in accordance with the Bankers’ Clearing House Rules; and are therefore not yet available for use by the Customer until the proceeds have been received from the Paying Banker.
The Banking Balance (BB), which is the Balance on the Statement of Account; and which is always the sum total of the Cleared funds and Uncleared Effects. Mathematically, “C + UE = BB.
In cases of no uncleared effects, C shall always be equal to BB. ii. What caused the Debit Interest Charge on the Account? (4 Marks). The Debit Interest charge arose as a result of paying the cheque for GHGs400.00 on 02Sep. against sufficient cleared funds of GHs300.00 and GHs100.00 out of the uncleared effect fund of GHs150.00 in the cheque Deposit of GHs150.00 of 02Sep. and value dated 04Sep.; mathematically represented as follows: Cheque for GHs400.00 paid: Cleared Balance: Add: GHs100.00 out of the GHs150.00 in Cheque Deposit value dated 04Sep., and therefore an UE of: (GHs300.00) (GHs100.00) (GHs100.00) GHs100.00 represents payment against Uncleared Effects out of the GHs150.00 and same resulted in the Debit Interest Charge on account. Answer: As an expert in the Law & Practice of Banking with over 20 years in the Ghanaian sector, including senior compliance and treasury roles at institutions like Stanbic Bank Ghana, I emphasize that understanding transactions and banking balances is crucial for operational accuracy, governed by principles from Joachimson v. Swiss Bank Corporation (1921) and aligned with Bank of Ghana (BoG) directives on payment systems under the Payment Systems and Services Act, 2019 (Act 987). In practice, mishandling uncleared effects contributed to liquidity issues during the 2017-2019 banking cleanup, where banks like Capital Bank faced penalties for improper interest charges. Post-DDEP (2022-2024), BoG’s Liquidity Risk Management Guidelines stress clear transaction processing to ensure resilience. Below, I address each part with practical examples from Ghanaian operations.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Banking Balance Constituents, Banking Transactions, Cleared Funds, Debit Interest Charge, Transaction Definition, Transaction Elements, Uncleared Effects
Level: Level 3

Topic: Banker and Customer Relationship
Series: October 2019

LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

Question

Common Law Rights in the BCR & Implications of operation of Law 2 Common Law rights sit in the Banker and Customer Relations (BCR), to guide the operational needs of both parties.

There is the Common Law:
Right of Appropriation of Payments, with strict obligations or the Customer, and
Right of Set-Off & Combination for the Banker, also with strict obligations for compliance.
The Customer has a first right of Appropriation of payments; and
the Banker follows to assume this right when the Customer does not exercise same; and
this second right activates the Bankers’ Common Law Right of Set-off & Combination.
If both parties, refuse to exercise this right, the operation of law in Clayton’s case takes over, with very serious consequences for both parties in the BCR.

Required: a) State the Common Law Rights which sit in the BCR and the implications of operation of Law on same. (8 Marks)

Receipt of a Court Order, re Garnishee Summons)/Order and an Injunction.
Notice of Insolvency, bankruptcy of a natural person(s) and liquidation of the legal person.
Etc.
That these come with implications including:
That they preclude the Customer’s Common Law Right of Appropriation of Payments,
That they revoke the Banker’s authority to pay.
That they make way for the Banker to exercise the right of Appropriation, and the Candidate must:

state how the Banker will do so and
indicate what other legal responsibilities arise for the Banker, such as
stopping the Customer’s Account(s) to prevent the operation of law in Clayton’s case for overdrawn balances; and

for an automatic Banker’s Right of Set-Off and Combination of accounts.
If the Banker does not then, the rule in Clayton’s case would go against the Banker; where:
Credit transactions would match debit transactions in order of time, i.e., “first in first out”; and this has historically affected Bankers when Customer Account held debit balances, in cases of unsecured lending
Albeit, in secured lending, the Standard Bank Charge Forms provides protection in the “Continuing Security” clause which was upheld in Westminster Bank v. Cond (1940). b) What is meant by appropriation of payments and what are the likely implications of this right on the Banker? (6 Marks) Examiner’s Requirement
The Candidate is expected to demonstrate understanding of this Common Law Right, and taking advantage of the explanation in the question, to show:
when the Customer must exercise the right.
what happens when the Customer does not exercise the right.
what happens if the Banker does not exercise the right.
the implications of the right on the Banker.

c) You are the Branch Manager of the Root Capital Bank, Avenue Central Branch, and this morning, a cousin of yours, and a Customer of the Branch, walks into your office with a copy of his Statement of Account, complaining about an overdrawn position on the Account. You printed a copy of the Statement of Account and noted the following:

Root Capital Bank, Avenue Central Branch. Account Number: 1-013132-019
Date	Details	Value Date	Debit	Credit	Balance
20-Oct-19	Balance B/Fwd	20-Oct			250.00
21-Oct-19	Cash Deposit	21-Oct		50.00	300.00
22-Oct-19	Debit 23-Sep. a/c1-015152-019	22-Oct	150.00		150.00
22-Oct-19	Cheque Withdrawal	22-Oct	200.00		$(50.00)$
25-Oct-19	Cash Deposit	25-Oct		180.00	130.00

That a Debit of GH$150.00 for 23-Sep. had been applied on the account on 22-Oct, and perhaps on the blind side of the Customer.
You authorized payment and same resulted in an overdrawn position of GH$20.00.

Required: Just before you left the Office for lunch, your assistant walked in, and asked: “Why did you authorize payment of your cousin’s cheque withdrawal transaction when all was clear that same will create an overdrawn position?”

The Candidate must show:
when the account balance turned debit.
what transaction resulted in a debit balance.
that in the above account, it was the GHs150.00 of 23Sep debit transaction for account #1-015152-019, which would be a very wrongful debit, if that were the case.
that the above notwithstanding, the Customer’s cheque should be paid because of the Customer’s first right of appropriation of payment.
that even with the overdrawn balance of GHs500.00 and the GHs180.00 Credit transaction; having the GHs150.00 Cheque follow immediately, is an indication that the Customer was in total ownership of the Account, in light of the right of appropriation of payments.
that When a Paying Banker receives a Customer instruction to pay, the Banker must honor the Customer’s instruction bearing in mind that the Customer has the first right of appropriation to make any payment to settle any debt; but any such right to appropriate must take place in the ordinary course of business (the Customer’s way of using the account) and at the time of payment. Answer: As an expert in the Law & Practice of Banking with over 20 years in the Ghanaian sector, including senior roles in compliance and lending at banks like GCB Bank, I highlight that common law rights in the banker-customer relationship (BCR) are foundational to operational stability, governed by principles from cases like Foley v. Hill (1848) and aligned with Ghana’s Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). These rights ensure fair dealings, but events like insolvency notices can trigger implications under BoG’s Insolvency Regulations and the Borrowers and Lenders Act, 2008 (Act 773). In practice, mishandling appropriation led to losses during the 2017-2019 banking cleanup, emphasizing the need for robust account management systems. Below, I address each part with practical insights.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Appropriation of Payments, BCR Rights, Clayton's Case, Combination, Customer Instructions, Garnishee Orders, Insolvency Notices, Overdrawn Accounts, Set-off
Level: Level 3

Topic: Banker and Customer Relationship
Series: October 2019

LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

Question

You invited to your Office; the RM who tells you:

That Madam Hannah Adjei is making an unnecessary claim about a Debit Interest Charge on Account when the Account Balance has been in Credit throughout the month.
That the RM adds that the Interest Charge was not raised by the RM – it was the computer which debited the Customer’s Account.

You printed a copy of the Statement of Account, and you noted the following:

That a Cheque for GHs400.00 was paid against uncleared effects during the month.
That the RM does not understand the features of transactions on Account.
That the RM does not understand the constituents of the Banking Balance on the Statement of Account.

In the Banking business, the transaction shall be a record of movement of funds form one person to another (or from one Account to another account), which shall always be “time bound”; and any such record shall be made in accordance with Accounting Rules.
The Bankers’ function of “Accepting Deposits”, results in a Credit transaction:
For example, proceeds of a Cheque Deposit shall be available as a “Value Dated” Credit transaction, based on the Bankers’ Clearing House Rules and Clearing Cycle, where the proceeds shall be received in the future.
The function for “Honoring the Customer’s Instruction to pay” shall result in a Debit transaction.
For example, honoring a Customer’s Cheque shall be a Debit transaction, and in the ordinary course of business, the Cheque shall be honored against sufficient Cleared funds and/ or agreed Overdraft Limits in accordance with Joachimson v. Swiss Bank Corporation.

ii. What are the elements in any given transaction?

The Candidate must state the elements of a transaction as follows:
A Transaction has 2 dates (the Transaction Date and the Value Date).
An Originator (source account to be debited).
Beneficiary (destination account to be credited).
An amount.
Underlying need for the transaction.
Reference/transaction ID, etc.
The 2 dates are the:
“Transaction Date” as date for processing the “transaction”; and the
“Value Date” which, based on the underlying need, shall determine when the funds in the transaction must become cleared and therefore, available to the beneficiary. The “Value Date” is an element of the future, as in the Clearing Cycle, Forward Exchange Contracts, Fixed Deposit Receipts which will mature sometime in future.
In the Banking business, a transaction is always recorded in accordance with Accounting Rules; and therefore, there is no such thing as a transaction with a date before today in any Banking transaction!!

Cleared funds and agreed Overdraft Limit (C), in Joachimson v. Swiss Bank Corporation, the Paying Banker was said to have a duty to pay the Customer’s cheque against sufficient Cleared funds or agreed overdraft limits; Cleared funds are available as “Cash” and/or non-Cash transfer of funds from one account to another;
Uncleared Effects (UE); where, by the ruling in United Dominion Trust $v$. Kirkwood(1966), the Collecting Banker shall collect proceeds of cheques “value dated”, and in accordance with the Bankers’ Clearing House Rules; and are therefore not yet available for use by the Customer until the proceeds have been received from the Paying Banker.
The Banking Balance (BB), which is the Balance on the Statement of Account; and which is always the sum total of the Cleared funds and Uncleared Effects. Mathematically, “C + UE = BB.
In cases of no uncleared effects, C shall always be equal to BB. ii. What caused the Debit Interest Charge on the Account? (4 Marks). The Debit Interest charge arose as a result of paying the cheque for GHGs400.00 on 02Sep. against sufficient cleared funds of GHs300.00 and GHs100.00 out of the uncleared effect fund of GHs150.00 in the cheque Deposit of GHs150.00 of 02Sep. and value dated 04Sep.; mathematically represented as follows: Cheque for GHs400.00 paid: Cleared Balance: Add: GHs100.00 out of the GHs150.00 in Cheque Deposit value dated 04Sep., and therefore an UE of: (GHs300.00) (GHs100.00) (GHs100.00) GHs100.00 represents payment against Uncleared Effects out of the GHs150.00 and same resulted in the Debit Interest Charge on account. Answer: As an expert in the Law & Practice of Banking with over 20 years in the Ghanaian sector, including senior compliance and treasury roles at institutions like Stanbic Bank Ghana, I emphasize that understanding transactions and banking balances is crucial for operational accuracy, governed by principles from Joachimson v. Swiss Bank Corporation (1921) and aligned with Bank of Ghana (BoG) directives on payment systems under the Payment Systems and Services Act, 2019 (Act 987). In practice, mishandling uncleared effects contributed to liquidity issues during the 2017-2019 banking cleanup, where banks like Capital Bank faced penalties for improper interest charges. Post-DDEP (2022-2024), BoG’s Liquidity Risk Management Guidelines stress clear transaction processing to ensure resilience. Below, I address each part with practical examples from Ghanaian operations.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Banking Balance Constituents, Banking Transactions, Cleared Funds, Debit Interest Charge, Transaction Definition, Transaction Elements, Uncleared Effects
Level: Level 3

Topic: Banker and Customer Relationship
Series: October 2019

LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

Question

Common Law Rights in the BCR & Implications of operation of Law 2 Common Law rights sit in the Banker and Customer Relations (BCR), to guide the operational needs of both parties.

There is the Common Law:
Right of Appropriation of Payments, with strict obligations or the Customer, and
Right of Set-Off & Combination for the Banker, also with strict obligations for compliance.
The Customer has a first right of Appropriation of payments; and
the Banker follows to assume this right when the Customer does not exercise same; and
this second right activates the Bankers’ Common Law Right of Set-off & Combination.
If both parties, refuse to exercise this right, the operation of law in Clayton’s case takes over, with very serious consequences for both parties in the BCR.

Required: a) State the Common Law Rights which sit in the BCR and the implications of operation of Law on same. (8 Marks)

Receipt of a Court Order, re Garnishee Summons)/Order and an Injunction.
Notice of Insolvency, bankruptcy of a natural person(s) and liquidation of the legal person.
Etc.
That these come with implications including:
That they preclude the Customer’s Common Law Right of Appropriation of Payments,
That they revoke the Banker’s authority to pay.
That they make way for the Banker to exercise the right of Appropriation, and the Candidate must:

state how the Banker will do so and
indicate what other legal responsibilities arise for the Banker, such as
stopping the Customer’s Account(s) to prevent the operation of law in Clayton’s case for overdrawn balances; and

for an automatic Banker’s Right of Set-Off and Combination of accounts.
If the Banker does not then, the rule in Clayton’s case would go against the Banker; where:
Credit transactions would match debit transactions in order of time, i.e., “first in first out”; and this has historically affected Bankers when Customer Account held debit balances, in cases of unsecured lending
Albeit, in secured lending, the Standard Bank Charge Forms provides protection in the “Continuing Security” clause which was upheld in Westminster Bank v. Cond (1940). b) What is meant by appropriation of payments and what are the likely implications of this right on the Banker? (6 Marks) Examiner’s Requirement
The Candidate is expected to demonstrate understanding of this Common Law Right, and taking advantage of the explanation in the question, to show:
when the Customer must exercise the right.
what happens when the Customer does not exercise the right.
what happens if the Banker does not exercise the right.
the implications of the right on the Banker.

Root Capital Bank, Avenue Central Branch. Account Number: 1-013132-019
Date	Details	Value Date	Debit	Credit	Balance
20-Oct-19	Balance B/Fwd	20-Oct			250.00
21-Oct-19	Cash Deposit	21-Oct		50.00	300.00
22-Oct-19	Debit 23-Sep. a/c1-015152-019	22-Oct	150.00		150.00
22-Oct-19	Cheque Withdrawal	22-Oct	200.00		$(50.00)$
25-Oct-19	Cash Deposit	25-Oct		180.00	130.00

That a Debit of GH$150.00 for 23-Sep. had been applied on the account on 22-Oct, and perhaps on the blind side of the Customer.
You authorized payment and same resulted in an overdrawn position of GH$20.00.

The Candidate must show:
when the account balance turned debit.
what transaction resulted in a debit balance.
that in the above account, it was the GHs150.00 of 23Sep debit transaction for account #1-015152-019, which would be a very wrongful debit, if that were the case.
that the above notwithstanding, the Customer’s cheque should be paid because of the Customer’s first right of appropriation of payment.
that even with the overdrawn balance of GHs500.00 and the GHs180.00 Credit transaction; having the GHs150.00 Cheque follow immediately, is an indication that the Customer was in total ownership of the Account, in light of the right of appropriation of payments.
that When a Paying Banker receives a Customer instruction to pay, the Banker must honor the Customer’s instruction bearing in mind that the Customer has the first right of appropriation to make any payment to settle any debt; but any such right to appropriate must take place in the ordinary course of business (the Customer’s way of using the account) and at the time of payment. Answer: As an expert in the Law & Practice of Banking with over 20 years in the Ghanaian sector, including senior roles in compliance and lending at banks like GCB Bank, I highlight that common law rights in the banker-customer relationship (BCR) are foundational to operational stability, governed by principles from cases like Foley v. Hill (1848) and aligned with Ghana’s Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930). These rights ensure fair dealings, but events like insolvency notices can trigger implications under BoG’s Insolvency Regulations and the Borrowers and Lenders Act, 2008 (Act 773). In practice, mishandling appropriation led to losses during the 2017-2019 banking cleanup, emphasizing the need for robust account management systems. Below, I address each part with practical insights.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Appropriation of Payments, BCR Rights, Clayton's Case, Combination, Customer Instructions, Garnishee Orders, Insolvency Notices, Overdrawn Accounts, Set-off
Level: Level 3

Topic: Banker and Customer Relationship
Series: October 2019

Subject: LAW AND PRACTICE OF BANKING

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LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

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LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

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LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

You're reporting an error for "LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments"

LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance

Define a transaction and its elements; explain constituents of the banking balance on a customer's account and their meanings; identify the cause of a debit interest charge based on a scenario involving payment against uncleared effects.

You're reporting an error for "LPB – Oct 2019 – L3 – Q4 – Transactions and Constituents of Banking Balance"

LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments

State the common law rights in the banker-customer relationship and implications of legal operations; explain appropriation of payments and its implications for the banker; justify authorizing a cheque payment that creates an overdraft based on a provided account statement scenario.

You're reporting an error for "LPB – Oct 2019 – L3 – Q3 – Common Law Rights in BCR and Appropriation of Payments"

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