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The unique risk exposures of Islamic banks’ capital buffers: A dynamic panel data analysis

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  • Daher, Hassan
  • Masih, Mansur
  • Ibrahim, Mansor

Abstract

The growing relevance of Islamic banking from a prudential perspective warrants the need to investigate the susceptibilities of Islamic banks’ capital buffers to unique risks emanating from their operating environments. We employ a panel model using two-step dynamic Generalized Method of Moments (GMM) on a data set comprising 128 conventional and Islamic banks. Our results tend to indicate privately owned Islamic banks, unlike their state owned counterparts, attempt to safeguard shareholders by independently mitigating the effects of displaced commercial risk through higher capital buffers. The relation between equity investment risk and bank capital buffers also seems to vary by region.

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  • Daher, Hassan & Masih, Mansur & Ibrahim, Mansor, 2015. "The unique risk exposures of Islamic banks’ capital buffers: A dynamic panel data analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 36(C), pages 36-52.
    • Handle: RePEc:eee:intfin:v:36:y:2015:i:c:p:36-52
    DOI: 10.1016/j.intfin.2015.02.012
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    More about this item

    Keywords

    Islamic banks; Capital buffers; Risk management; Bank regulation; Capital adequacy;
    All these keywords.

    JEL classification:

    • 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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