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Dual Banking and Financial Contagion

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

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 49814.

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    Date of creation: Nov 2012
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    Handle: RePEc:pra:mprapa:49814
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    1. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
    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. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-38, August.
    4. Heiko Hesse & Nathaniel Frank & Brenda González-Hermosillo, 2008. "Transmission of Liquidity Shocks: Evidence from the 2007 Subprime Crisis," IMF Working Papers 08/200, International Monetary Fund.
    5. Franklin Allen & Douglas Gale, 1976. "Optimal Financial Crises," Center for Financial Institutions Working Papers 97-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
    6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    7. Jemma Dridi & Maher Hasan, 2010. "The Effects of the Global Crisison Islamic and Conventional Banks: A Comparative Study," IMF Working Papers 10/201, International Monetary Fund.
    8. 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.
    9. Bhattacharya, Sudipto & Boot, Arnoud W A & Thakor, Anjan V, 1998. "The Economics of Bank Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(4), pages 745-70, November.
    10. 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.
    11. 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.
    12. Adrian, T. & Shin, H S., 2008. "Liquidity and financial contagion," Financial Stability Review, Banque de France, issue 11, pages 1-7, February.
    13. Syed Ali, Salman, 2007. "Financial Distress And Bank Failure: Lessons From Closure Of Ihlas Finans In Turkey," Journal of Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 14, pages 2-52.
    14. Siddiqi, Mohammad Nejatullah, 2006. "Islamic Banking And Finance In Theory And Practice: A Survey Of State Of The Art," Journal of Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 13, pages 2-48.
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