Basel Compliance and Financial Stability: Evidence from Islamic Banks

By Mohammad Bitar, Sami Ben Naceur, Rym Ayadi, Thomas Walker

July 18, 2017

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Mohammad Bitar, Sami Ben Naceur, Rym Ayadi, and Thomas Walker. Basel Compliance and Financial Stability: Evidence from Islamic Banks, (USA: International Monetary Fund, 2017) accessed November 7, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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 Zscore 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.

Subject: Bank regulation, Bank soundness, Bank supervision, Banking, Basel Core Principles, Financial regulation and supervision, Financial sector policy and analysis, Financial services, Islamic banking

Keywords: Bank regulation, Bank soundness, Bank stability, Bank supervision, Bank type, Basel Core Principles, BCP compliance, BCP index, BCPs, Compliance index, Conventional bank, CPIFRs, Global, Islamic bank, Islamic banking, Islamic banks, Stability, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/161
Stock No:

WPIEA2017161
ISBN:

9781484309216
ISSN:

1018-5941

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