XXVI Edition

14-15-16 December 2017"

Basel Compliance and Financial Stability: Evidence from Islamic Banks

Bitar Mohammad , Concordia University in Canada
Ben Naceur Sami, International Monetary Fund
Ayadi Rym , HEC Montreal
Walker Thomas, Concordia University in Canada

The paper provides robust evidence that compliance with Basel Core Principles (BCPs) has a strong positive effect on the Z-score of conventional banks, albeit less pronounced on the Z-score of Islamic banks. Using a sample of banks operating in 19 developing countries, the results appear to be driven by capital ratios, a component of Z-score for the two types of banks. Even though smaller on Islamic banks, individual chapters of BCPs also suggest a positive effect on the stability of conventional banks. The findings support the effective role of BCP standards in improving bank stability, whose important implications led to the Islamic Financial Services Board (IFSB) publication of new recommendations in 2015 to bring BCP standards in line with the Core Principles for Islamic Finance Regulation (CPIFRs) standards. Our findings suggest that because Islamic banks are benchmarked closely to BCPs, the implementation of CPFIRs should also positively affect their stability.

Area: Financial Regulation and Supervision

Keywords: BCPs, CPIFRs, Stability, Islamic banks

Il paper è coperto da copyright.

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