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Contribution of Islamic banks to systemic risk

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  • Mohamed Amin Chakroun
  • Mohamed Imen Gallali

Abstract

This study aims to compare Islamic to conventional banks in order to examine their contribution to systemic risk. It examines listed banks from six Middle Eastern countries using the marginal expected shortfall (MES) method to measure dynamic individual systemic risk. We then try to determine the factors affecting these systemic risk levels for each type of bank. Finally, we refer to the panel VAR model estimated by GMM to determine the impact of the shock in each type of bank's effect on financial stability. The main results show that conventional banks present a significant systemic risk than Islamic banks. This result does not prove that Islamic banks do not present a real danger to the overall system's stability. On the contrary, they significantly contribute to systemic risk mainly during unstable periods. We conclude that market risk and bank size represent the main factors that positively affect systemic risk of Islamic banks.

Suggested Citation

  • Mohamed Amin Chakroun & Mohamed Imen Gallali, 2017. "Contribution of Islamic banks to systemic risk," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 8(1), pages 52-92.
    • Handle: RePEc:ids:injbaf:v:8:y:2017:i:1:p:52-92
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    Cited by:

    1. Wahyu Jatmiko & M. Shahid Ebrahim & Abdullah Iqbal & Rafal M. Wojakowski, 2023. "Can trade credit rejuvenate Islamic banking?," Review of Quantitative Finance and Accounting, Springer, vol. 60(1), pages 111-146, January.

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