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Liquidity creation performance and financial stability consequences of Islamic banking: Evidence from a multinational study

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  • Berger, Allen N.
  • Boubakri, Narjess
  • Guedhami, Omrane
  • Li, Xinming

Abstract

Despite the growth of Islamic banks (IBs), little is known about their liquidity creation performance and financial stability consequences relative to conventional banks (CBs). We address these issues using data from 24 countries over 2000–2014. We find IBs create more liquidity per unit of assets than CBs, primarily on the asset side of the balance sheet. Results are economically significant, econometrically robust, hold in high- and low-income countries, and during the Global Financial Crisis and other times. In addition, CB liquidity creation results in reduced national financial stability, particularly in high-income countries, whereas IB liquidity creation does not.

Suggested Citation

  • Berger, Allen N. & Boubakri, Narjess & Guedhami, Omrane & Li, Xinming, 2019. "Liquidity creation performance and financial stability consequences of Islamic banking: Evidence from a multinational study," Journal of Financial Stability, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finsta:v:44:y:2019:i:c:s1572308918306582
    DOI: 10.1016/j.jfs.2019.100692
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    Keywords

    Islamic banks; Bank liquidity creation; Financial stability;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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