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Bank level stability factors and consumer confidence – a comparative study of Islamic and conventional banks’ product mix

  • Hussein, Kassim

This study examines the behaviour of key bank level stability factors of liquidity, capital, risk-taking and consumer confidence in Islamic and conventional banks which operate in the same market. Using fixed effect sample of 194 banks of Gulf Cooperating Countries between 2000 and 2007, we found that liquidity is not determined by bank’s product mix but rather attributed to systematic factors. However, non performing assets (representing loans to sub prime borrowers) have positive and significant relationship with liquidity implying that during the crisis, Islamic banks tend to take stringent risk strategies compared to conventional banks. Furthermore, Islamic banks generally tend to provide higher consumer confidence levels as they were more capitalized than conventional banks, although conventional banks had carried higher averages of liquidity compared to Islamic banks. Consumer confidence levels or depositors’ discipline as proxied by deposits and customer funding over liabilities generally appear to be higher in Islamic banks than conventional banks.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 21800.

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Date of creation: 01 Apr 2010
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Handle: RePEc:pra:mprapa:21800
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  1. Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 07/117, International Monetary Fund.
  2. Takatoshi Ito & Yuri Nagataki Sasaki, 1998. "Impacts of the Basle Capital Standard on Japanese Banks' Behavior," Discussion Paper Series a356, Institute of Economic Research, Hitotsubashi University.
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  8. Koehn, Michael & Santomero, Anthony M, 1980. " Regulation of Bank Capital and Portfolio Risk," Journal of Finance, American Finance Association, vol. 35(5), pages 1235-44, December.
  9. Abbas Mirakhor & Mohsin S. Khan, 1991. "Islamic Banking," IMF Working Papers 91/88, International Monetary Fund.
  10. Martin Cihák & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
  11. Luca Errico & Mitra Farahbaksh, 1998. "Islamic Banking: Issues in Prudential Regulations and Supervision," IMF Working Papers 98/30, International Monetary Fund.
  12. Rochet, Jean-Charles, 1992. "Capital requirements and the behaviour of commercial banks," European Economic Review, Elsevier, vol. 36(5), pages 1137-1170, June.
  13. El-Hawary & Dahlia & Grais, Wafik & Iqbal, Zamir, 2004. "Regulating islamic financial institutions : The nature of the regulated," Policy Research Working Paper Series 3227, The World Bank.
  14. Martin Cihák & Heiko Hesse, 2007. "Cooperative Banks and Financial Stability," IMF Working Papers 07/2, International Monetary Fund.
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