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Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis

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Author Info

  • Hassan Ghassan

    ()
    (King Faisal University)

  • Stefano Fachin

    ()
    (Universita' di Roma "La Sapienza")

  • Abdelkarim Guendouz

    ()
    (King Faisal University)

Abstract

Islamic banks are characterised by the compliance to Islamic laws and practices, the main ones being the prohibition of interest and loans trading. Remarkably, during the 2008-2009 financial crisis, when a large number of conventional banks have announced bankruptcy, no single Islamic bank failure has been reported. However, there is no clear consensus in the literature on question of whether Islamic banks are more or less stable than conventional banks. We study a sample of Saudi banks over a period centred on the 2008 financial crisis. The main conclusions are: (i) the variables typically used in financial stability studies may be non-stationary, a feature ignored in the literature, and, (ii), individual heterogeneity may matter more than the conventional or islamic nature of the banks.

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File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20131_Ghassan_Fachin_Guendoz.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome in its series DSS Empirical Economics and Econometrics Working Papers Series with number 2013/1.

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Length: 19 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:sas:wpaper:20131

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Related research

Keywords: Islamic Banks; Financial Crisis; Financial Stability; Z-score Model; Saudi Arabia.;

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References

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  1. Patrick A. Imam & Kangni Kpodar, 2010. "Islamic Banking," IMF Working Papers 10/195, International Monetary Fund.
  2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer, vol. 38(2), pages 95-113, December.
  3. Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.
  4. Ariss, Rima Turk, 2010. "Competitive conditions in Islamic and conventional banking: A global perspective," Review of Financial Economics, Elsevier, vol. 19(3), pages 101-108, August.
  5. Martin CIHAK, 2007. "Systemic Loss: A Measure of Financial Stability (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 5-26, March.
  6. Martin Cihák & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
  7. Stefano Fachin, 2007. "Long-run trends in internal migrations in italy: a study in panel cointegration with dependent units," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 401-428.
  8. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-76, April.
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