Liquidity and Financial Stability Conventional versus Islamic Banks
AbstractPurpose: This article examines the relationship between liquidity and banking financial stability. Methodology- This paper uses dynamic simultaneous-equation panel data models for 28 Islamic banks and 53 conventional banks over the period 2006-2013. Findings- Our results provide evidence of bidirectional causality between liquidity and banking financial stability for global panel, and in Islamic and conventional banks. As a result, banks have an incentive to take the direct impact of liquidity on stability. Recommendations- These empirical insights are of particular interest to regulators by encouraging banks to reduce the risks on their balance sheets and facilitating the liquidation of assets in a crisis.
Bank liquidity, Bank stability, Islamic bank Conventional bank