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