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Dual Banking and Financial Contagion

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  • Mahmoud Sami Nabi

    (IRTI-Islamic Development Bank and Economic Research Forum)

Abstract

This paper builds a theoretical model based on Allen and Gale (2000) to analyze how an unexpected shock affecting the banking assets in one region can generate bankruptcy in a second region. I also analyze the effect of the presence of an Islamic bank in a third region on the vulnerability of conventional banks to financial contagion. It is shown that the Islamic bank’s assets diversification strategy across the regions reduces the likelihood of financial contagion among conventional banks.

Suggested Citation

  • Mahmoud Sami Nabi, 2013. "Dual Banking and Financial Contagion," Working Papers 776, Economic Research Forum, revised Sep 2013.
  • Handle: RePEc:erg:wpaper:776
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    References listed on IDEAS

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    1. Hennie Van Greuning & Zamir Iqbal, 2008. "Risk Analysis for Islamic Banks," World Bank Publications - Books, The World Bank Group, number 6923, December.
    2. Nabi, Mahmoud Sami, 2012. "Dual Banking and Financial Contagion," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 20, pages 29-54.
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    5. Franklin Allen & Douglas Gale, 2000. "Financial Contagion," Journal of Political Economy, University of Chicago Press, vol. 108(1), pages 1-33, February.
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    10. Serhan Cevik & Joshua Charap, 2015. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 111-124.
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    13. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    14. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
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    18. El-Hawary, Dahlia & Grais, Wafik & Iqbal, Zamir, 2007. "Diversity in the regulation of Islamic Financial Institutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(5), pages 778-800, February.
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    Cited by:

    1. Nabi, Mahmoud Sami, 2012. "Dual Banking and Financial Contagion," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 20, pages 29-54.
    2. Monia Ben Latifa & Walid Khoufi, 2018. "Contagion between Islamic and Conventional Banks in Malaysia: Empirical Investigation using a DCC-GARCH Model العدوى بين البنوك الإسلامية والتقليدية في ماليزيا: تحقيق تجريبي بواسطة نموذج (DCC-GARCH)," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 31(1), pages 167-178, January.
    3. Hasan, Zubair Hasan, 2014. "The recent turmoil and monetary policy in a dual financial system with Islamic perspective," MPRA Paper 57133, University Library of Munich, Germany.
    4. Chunxiu, Ma & Masih, Mansur, 2014. "Contagion Effects of US Subprime Crisis on ASEAN-5 Stock Markets: Evidence from MGARCH-DCC Application," MPRA Paper 57004, University Library of Munich, Germany.
    5. Mohamed Ben Mimoun, 2021. "Stability of Conventional and Islamic banks, externalities and resilience to crises: evidences from comprehensive Saudi banks' time-series data," Economics Bulletin, AccessEcon, vol. 41(3), pages 1165-1179.
    6. repec:abd:kauiea:v:31:y:2018:i:1:p:167-178 is not listed on IDEAS

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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