A LEGAL ANALYSIS OF THE KENYAN BANK REGULATORY AND SUPERVISORY REGIME

Table of Contents

DECLARATION .................................................................................. .i DEDICATION: ......................................................... , ...................... ii ACKNOWLEDGEMENT ....................................................................... iii ACRONYMS ................................................................... .iv

Cases ......................................................................................... v

Statutes ................................................................................................. vi CHAPTER ONE .................................................................................... 3 1.0. Introduction ....................................................................................... 3 1.1 Background to the problem ............................................... 3 1.2 Statement of the Problem ........................................................ 6 1.3 Objectives of the study ................................................................ 6 (a) General Objective ...................................................................... 6 (b) Specific objective ...................................................................... 6 1.4 Research Question to be answered ................................ 7 1.5 Hypothesis ...................................................................................... 7 1. 6 Research Justification ....................................... : ............................ 7 1. 7 Methodology to be used ...................................................... 8 1.8 Scope of study .......................................................................... 8 1.9 literature review ......................................................................................................... 9 CHAPTER TWO ............................................................................................................... 12 CONCEPT, TERMS AND PRINCIPLES OF THE KENYAN BANKING SYSTEM ... 12 2.1 Introduction ............................................................................................................. 12 2.2 Definition of terms ................................................................................................... 12 2.2 Functions ofbanks ................................................................................................... 15 2.3 The need to control banks ........................................................................................ 17 2.4 Causes of bank failures ............................................................................................ 18 2.4.1 Mismanagement. ............................................................................................... 18 2.4.2 Regulation of banks .......................................................................................... 19 2.4.3 Bank limitation on establishing branches and investing .................................. 19 2.4.4 Ceiling on deposit interest rates and capital requirements ............................... 20 2.4.5 Lender of last resort. ......................................................................................... 21 2.4.6 Fraud, Corruption and poor risk management procedures ............................... 21 2.4.7 Political interference ......................................................................................... 22 CHAPTER THREE ......................................................................................................... 23 LEGAL AND BANK SUPEVISORY REGIME IN KENY A .......................................... 23 3.0 Introduction ............................................................................................................. 23 3 .1 Current bank regulation and supervision in Kenya ................................................. 23 3.2 Ex-ante controls ....................................................................................................... 24 3.2.1 Licenses and capital requirements ........................................................................ 24 3.2.2 Regulation on branch establishment.. ................................................................... 26 3.3 Ex-post control. ....................................................................................................... 26 3 .3 .1 Deposit Protection Fund ....................................................................................... 26 3.3.2 Information disclosure ...................................................................................... 28 1 3.3.3 Central bank inspection and control. ................................................................ 28 3.3.4 Prohibited business, reserve requirement and dividend payment control. ....... 29 3.3.5 Winding up ....................................................................................................... 30 3.4 Bank regulation and supervision inadequacies in Kenya ........................................ 30 3.4.1 Penalties under the Banking Act. ..................................................................... 30 3.4.2 Independence of the regulatory and supervisory body ..................................... 31 3.4.3Resources ........................................................................................................... 33 3.4.4 Deposit protection fund .................................................................................... 33 3.4.5 Finance Minister's Powers ............................................................................... 34 3.4.6 Money laundering ............................................................................................. 34 3.5Conclusion ................................................................................................................ 36 CHAPTER FOUR ............................................................................................................. 37 COMPARATIVE STUDY ................................................................................................ 37 4.0 Introduction ................................................................................................................. 37 4.1 England's banking laws ........................................................................................... 38 4.2 Botswana's banking laws ........................................................................................ 38 4.3 Regulation and Supervision mechanism .................................................................. 38 4 .3 .1 Entry into banking business .............................................................................. 3 9 4.3.2 License revocation ............................................................................................ 41 4.3.3 Auditing ................................................................................. ; .......................... 42 4.3.4 Deposit insurance scheme ................................................................................ 43 4.3.5 Money Laundering ........................................................................................... 44 4.3.6 Corrective measures and penalties ................................................................... 46 CHAPTER FIVE ............................................................................................................. 47 CONCLUSION AND RECOMMENDATIONS ........................................................... 47 5.0 Introduction .............................................................................................................. 47 5.1 Conclusion ............................................................................................................... 47 REFERENCES .................................................................................................................. 54 Acts of parliament ......................................................................................................... 54 Articles and Journal ....................................................................................................... 54 NEWSPAPERS ........................................................................................................ 55 TEXT BOOKS .......................................................................................................... 55 Internet Sources ............................................................................................................. 56