Basel Compliance and Financial Stability: Evidence from Islamic Banks
- PDF / 897,004 Bytes
- 54 Pages / 439.37 x 666.142 pts Page_size
- 9 Downloads / 209 Views
Basel Compliance and Financial Stability: Evidence from Islamic Banks Mohammad Bitar 1
2
3
& Sami Ben Naceur & Rym Ayadi & Thomas Walker
4
Received: 18 October 2018 / Revised: 24 May 2020 / Accepted: 28 May 2020 # The Author(s) 2020
Abstract
We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks. JEL Classification Numbers G18 . G21 . P51 Keywords BCPs . Core principles for Islamic finance regulation . Stability . Islamic banks The views expressed here are those of the authors, and the paper does not represent the views of the IMF, its Executive Board or its management.
* Mohammad Bitar [email protected] Sami Ben Naceur [email protected] Rym Ayadi [email protected] Thomas Walker [email protected]
1
Nottingham University, Nottingham, UK
2
International Monetary Fund, Washington, D.C., USA
3
Cass Business School, London, UK
4
Concordia University in Canada, Montreal, Canada
Journal of Financial Services Research
1 Introduction In this study, we examine whether compliance with the Basel Core Principles (BCPs) for effective banking supervision affects the stability and risk taking of conventional and Islamic banks. In prior studies, Demirgüç-Kunt and Detragiache (2011) and Ayadi et al. (2016) have examined the effects of BCP compliance using large and heterogeneous samples of conventional banks around the world. In this paper we extend their analyses to include Islamic banks. We also focus on a more homogeneous sample in the sense that the banks in our study operate mainly in developing and emerging countries. The BCPs were introduced in 1997 by the Basel Committee on Banking and Supervision (BCBS). Since then, several surveys have been conducted by the International Monetary Fund (IMF) and the World Bank to assess the quality of banking regulation and supervision worldwide under the Basel principles. The principles were initially created as a pilot project for 12 advanced countries, but they rapidly became the global standard for banking regulation. BCPs include 25 principles organised into 7 chapters (i.e., each chapter contains a few of the 25 principles). However, one important drawback of the BCPs is that they do not take into account the distinctive characteristics of certain types of bank such as Islamic banks.1 In 2015, the Islamic Financial Services Board (IFSB),2 an international regulatory organization that was created to promote the development and the stability of the Islamic financial industry, published a s
Data Loading...
