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Bank Resilience And Political Institutions: Do Banking Business Models Matter?

Author

Listed:
  • Wajahat Azmi

    (Thiagarajar School of Management, India)

  • Mohsin Ali

    (School of Business, Monash University Malaysia, Malaysia)

  • Muhammad Umar Islam

    (Asia Pacific University of Technology and Innovation, Malaysia)

Abstract

This paper investigates the effect of political institutions on bank stability of dual banking countries. Applying the two-step GMM approach to a panel sample of Islamic and conventional banks from 2005 to 2020, we arrive at the following results. First, we observe that the quality of political institutions leads to more stable banking system, which is in line with the view that quality political institutions improve the transparency, thereby reducing adverse selection and leading to overall improvement in the banking stability. Second, when we look at components of political institutions, we document the significance of the voice and accountability dimension in enhancing bank stability. Finally, as a side result, we find evidence that competition leads to stability for Islamic banks. These findings are robust to several robustness tests. The implications of our findings are provided in the paper.

Suggested Citation

  • Wajahat Azmi & Mohsin Ali & Muhammad Umar Islam, 2023. "Bank Resilience And Political Institutions: Do Banking Business Models Matter?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 9(2), pages 295-312, May.
    • Handle: RePEc:idn:jimfjn:v:9:y:2023:i:2e:p:295-312
    DOI: https://doi.org/10.21098/jimf.v9i2.1640
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    More about this item

    Keywords

    Political institutions; Stability; Islamic banks; Dual banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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