IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Islamic Banks’ Capital Buffers: Unique Risk Exposures and the Disciplining Effects of Charter Values

Listed author(s):
  • Daher, Hassan
  • Masih, A.Mansur M.
  • Ibrahim, Mansor H.

In the aftermath of the recent financial crisis, the inherent linkages between banks’ capital buffers and risk took center stage as policy makers promoted a more resilient global banking system. The growing recognition of Islamic banking as a viable alternative-banking model warrants the need to investigate the overall susceptibilities of Islamic banks’ capital buffers to unique risks emanating from their operating environments. We examine this issue over the period 2005-2012 in the 18 countries where Islamic and conventional commercial banks coexist. We employ a panel model using dynamic Generalized Methods of Moments (GMM) on a data set comprising 128 commercial banks of which 44 are Islamic commercial banks. The search for alternative forms of prudential regulation over and above risk based capital guidelines has also shifted the attention of policy makers towards investigating the disciplining effects of banks’ charter values on capital buffers. We test this issue for Islamic banks, and whether the relationship varies as a function of the size of the charter as implied by theory. We employ the cross-section threshold approach suggested by Hansen (2000) for 101 publicly listed commercial banks in the same countries. To the best of our knowledge, this study is the first attempt to examine empirically the aforementioned issues for Islamic banks. This study is expected to expose shortcomings in capital adequacy guidelines and raises distinct policy implications with regards to the regulation and supervision of Islamic banks in countries where both bank types co-exist.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://mpra.ub.uni-muenchen.de/56947/1/MPRA_paper_56947.pdf
File Function: original version
Download Restriction: no

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 56947.

as
in new window

Length:
Date of creation: 28 Jun 2014
Handle: RePEc:pra:mprapa:56947
Contact details of provider: Postal:
Ludwigstraße 33, D-80539 Munich, Germany

Phone: +49-(0)89-2180-2459
Fax: +49-(0)89-2180-992459
Web page: https://mpra.ub.uni-muenchen.de

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Reint Gropp & Jukka Vesala, 2004. "Deposit Insurance, Moral Hazard and Market Monitoring," Review of Finance, European Finance Association, vol. 8(4), pages 571-602.
  2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
  3. Rafael Repullo & Javier Suarez, 2013. "The Procyclical Effects of Bank Capital Regulation," Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 452-490.
  4. Coffinet, Jérôme & Coudert, Virginie & Pop, Adrian & Pouvelle, Cyril, 2012. "Two-way interplays between capital buffers and credit growth: Evidence from French banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(5), pages 1110-1125.
  5. Stolz, Stéphanie & Wedow, Michael, 2005. "Banks' regulatory capital buffer and the business cycle: evidence for German savings and cooperative banks," Discussion Paper Series 2: Banking and Financial Studies 2005,07, Deutsche Bundesbank, Research Centre.
  6. Pop Silaghi, Monica Ioana & Alexa, Diana & Jude, Cristina & Litan, Cristian, 2014. "Do business and public sector research and development expenditures contribute to economic growth in Central and Eastern European Countries? A dynamic panel estimation," Economic Modelling, Elsevier, vol. 36(C), pages 108-119.
  7. Hansen, Bruce E, 1999. " Testing for Linearity," Journal of Economic Surveys, Wiley Blackwell, vol. 13(5), pages 551-576, December.
  8. Maurice J. G. Bun & Frank Windmeijer, 2010. "The weak instrument problem of the system GMM estimator in dynamic panel data models," Econometrics Journal, Royal Economic Society, vol. 13(1), pages 95-126, February.
  9. Bacha, Obiyathulla I., 1997. "Adapting Mudarabah Financing to Contemporary Realities: A Proposed Financing Structure," MPRA Paper 12732, University Library of Munich, Germany, revised Nov 1996.
  10. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
  11. Bourkhis, Khawla & Nabi, Mahmoud Sami, 2013. "Islamic and conventional banks' soundness during the 2007–2008 financial crisis," Review of Financial Economics, Elsevier, vol. 22(2), pages 68-77.
  12. Blum, Jurg M., 2002. "Subordinated debt, market discipline, and banks' risk taking," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1427-1441, July.
  13. Allen, Franklin & Gale, Douglas, 2004. "Competition and Financial Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 453-480, June.
  14. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2006. "Bank concentration, competition, and crises: First results," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1581-1603, May.
  15. Uhde, André & Heimeshoff, Ulrich, 2009. "Consolidation in banking and financial stability in Europe: Empirical evidence," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1299-1311, July.
  16. Kaouther Toumi & Waël Louhichi & Jean-Laurent Viviani, 2012. "Alternative financial decision principles: Theoretical foundations of islamic banks capital structure," Post-Print halshs-00765913, HAL.
  17. Ayuso, Juan & Perez, Daniel & Saurina, Jesus, 2004. "Are capital buffers pro-cyclical?: Evidence from Spanish panel data," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 249-264, April.
  18. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
  19. Shrieves, Ronald E. & Dahl, Drew, 1992. "The relationship between risk and capital in commercial banks," Journal of Banking & Finance, Elsevier, vol. 16(2), pages 439-457, April.
  20. Nier, Erlend & Baumann, Ursel, 2006. "Market discipline, disclosure and moral hazard in banking," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 332-361, July.
  21. Merton, Robert C., 1977. "An analytic derivation of the cost of deposit insurance and loan guarantees An application of modern option pricing theory," Journal of Banking & Finance, Elsevier, vol. 1(1), pages 3-11, June.
  22. Lee, Chien-Chiang & Hsieh, Meng-Fen, 2013. "The impact of bank capital on profitability and risk in Asian banking," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 251-281.
  23. Farook, Sayd & Hassan, M. Kabir & Clinch, Gregory, 2012. "Profit distribution management by Islamic banks: An empirical investigation," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(3), pages 333-347.
  24. 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.
  25. Turk Ariss, Rima, 2010. "On the implications of market power in banking: Evidence from developing countries," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 765-775, April.
  26. Fonseca, Ana Rosa & González, Francisco, 2010. "How bank capital buffers vary across countries: The influence of cost of deposits, market power and bank regulation," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 892-902, April.
  27. Yener Altunbas & Santiago Carbo & Edward P.M. Gardener & Philip Molyneux, 2007. "Examining the Relationships between Capital, Risk and Efficiency in European Banking," European Financial Management, European Financial Management Association, vol. 13(1), pages 49-70.
  28. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
  29. Stolz, Stéphanie & Wedow, Michael, 2011. "Banks' regulatory capital buffer and the business cycle: Evidence for Germany," Journal of Financial Stability, Elsevier, vol. 7(2), pages 98-110, June.
  30. Abel Elizalde & Rafael Repullo, 2007. "Economic and Regulatory Capital in Banking: What Is the Difference?," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 87-117, September.
  31. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
  32. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  33. Shim, Jeungbo, 2013. "Bank capital buffer and portfolio risk: The influence of business cycle and revenue diversification," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 761-772.
  34. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
  35. Çoban, Serap & Topcu, Mert, 2013. "The nexus between financial development and energy consumption in the EU: A dynamic panel data analysis," Energy Economics, Elsevier, vol. 39(C), pages 81-88.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:56947. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.