Are Islamic Banks More Resilient during Financial Panics?

February 26, 2015

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Format: Chicago

Moazzam Farooq, and Sajjad Zaheer. Are Islamic Banks More Resilient during Financial Panics?, (USA: International Monetary Fund, 2015) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Rapid growth of Islamic banking in developing countries is accompanied with claims about its relative resilience to financial crises as compared to conventional banking. However, little empirical evidence is available to support such claims. Using data from Pakistan, where Islamic and conventional banks co-exist, we compare these banks during a financial panic. Our results show that Islamic bank branches are less prone to deposit withdrawals during financial panics, both unconditionally and after controlling for bank characteristics. The Islamic branches of banks that have both Islamic and conventional operations tend to attract (rather than lose) deposits during panics, which suggests a role for religious branding. We also find that Islamic bank branches grant more loans during financial panics and that their lending decisions are less sensitive to changes in deposits. Our findings suggest that greater financial inclusion of faith-based groups may enhance the stability of the banking system.

Subject: Asset and liability management, Bank credit, Banking, Commercial banks, Financial crises, Financial institutions, Financial services, Islamic banking, Liquidity, Loans

Keywords: AIslamic operations, Bank characteristic, Bank health index, Bank Run, Branch network, CAMEL-type bank fundamentals, Commercial banks, Discipline bank management, Do bank fundamentals, Financial panic, Global, Islamic bank, Islamic Banking, Liquidity, Liquidity crisis, Liquidity shock, Loans, Parent bank fragility, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/041
Stock No:

WPIEA2015041
ISBN:

9781484380628
ISSN:

1018-5941

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