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Basel Compliance and Financial Stability: Evidence from Islamic Banks

Author

Listed:
  • Mohammad Bitar

    (Nottingham University)

  • Sami Ben Naceur

    (International Monetary Fund)

  • Rym Ayadi

    (Cass Business School)

  • Thomas Walker

    (Concordia University in Canada)

Abstract

We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks.

Suggested Citation

  • Mohammad Bitar & Sami Ben Naceur & Rym Ayadi & Thomas Walker, 2021. "Basel Compliance and Financial Stability: Evidence from Islamic Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 60(1), pages 81-134, August.
    • Handle: RePEc:kap:jfsres:v:60:y:2021:i:1:d:10.1007_s10693-020-00337-6
    DOI: 10.1007/s10693-020-00337-6
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    Cited by:

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    3. Sepúlveda Velásquez, Jorge & Tapia Griñen, Pablo & Pastén Henríquez, Boris, 2023. "Mandatory dividends and economic policy uncertainty: A challenge for investment opportunities," Finance Research Letters, Elsevier, vol. 52(C).
    4. Samar Issa, 2020. "Life after Debt: The Effects of Overleveraging on Conventional and Islamic Banks," JRFM, MDPI, vol. 13(6), pages 1-46, June.
    5. Wahyu Jatmiko & M. Shahid Ebrahim & Abdullah Iqbal & Rafal M. Wojakowski, 2023. "Can trade credit rejuvenate Islamic banking?," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 111-146, January.
    6. Bitar, Mohammad & Hassan, M. Kabir & Saad, Wadad, 2020. "Culture and the capital–performance nexus in dual banking systems," Economic Modelling, Elsevier, vol. 87(C), pages 34-58.
    7. Bitar, Mohammad & Kabir Hassan, M. & Hippler, William J., 2018. "The determinants of Islamic bank capital decisions," Emerging Markets Review, Elsevier, vol. 35(C), pages 48-68.
    8. Abdullah Aloqab & Farouk Alobaidi & Bassam Raweh, 2018. "Operational Risk Management in Financial Institutions: An Overview," Business and Economic Research, Macrothink Institute, vol. 8(2), pages 11-32, June.
    9. Dibooglu, Sel & Cevik, Emrah I. & Tamimi, Hussein A. Hassan Al, 2022. "Credit default risk in Islamic and conventional banks: Evidence from a GARCH option pricing model," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 396-411.
    10. Adalessossi, Kokou, 2023. "Impact of E-Banking on the Islamic bank profitability in Sub-Saharan Africa: What are the financial determinants?," Finance Research Letters, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    G18; G21; P51;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • P51 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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