Basel Compliance and Financial Stability: Evidence from Islamic Banks

Bitar, Mohammad; Ben Naceur, S.; Ayadi, Rym; Walker, Thomas

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.

Citation

Bitar, M., Ben Naceur, S., Ayadi, R., & Walker, T. (2021). Basel Compliance and Financial Stability: Evidence from Islamic Banks. Journal of Financial Services Research, 60(1), 81-134. https://doi.org/10.1007/s10693-020-00337-6

• Journal Article Type: Article
• Acceptance Date: May 27, 2020
• Online Publication Date: Sep 15, 2020
• Publication Date: 2021-08
• Deposit Date: Jun 2, 2020
• Publicly Available Date: Sep 16, 2021
• Journal: Journal of Financial Services Research
• Print ISSN: 0920-8550
• Electronic ISSN: 1573-0735
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 60
• Issue: 1
• Pages: 81-134
• DOI: https://doi.org/10.1007/s10693-020-00337-6
• Keywords: BCPs; Core Principles for Islamic Finance Regulation; Stability; Islamic banks
• Public URL: https://nottingham-repository.worktribe.com/output/4562253
• Publisher URL: https://link.springer.com/article/10.1007/s10693-020-00337-6