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Basel Compliance and Financial Stability: Evidence from Islamic Banks
Author:
Mohammad Bitarnull

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,
Samy Ben Naceur
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,
Rym Ayadinull

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Thomas Walkernull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2017: Issue 161
Language:
English
Publication Date:
18 Jul 2017
DOI:
https://doi.org/10.5089/9781484309216.001
ISBN:
9781484309216
ISSN:
1018-5941
Pages:
40
Keywords:
WP; BCP compliance; Islamic bank; bank stability; compliance index; BCP index; BCPs; CPIFRs; Stability; Islamic banks; conventional bank; bank type; Basel Core Principles; Bank soundness; Islamic banking; Bank regulation; Bank supervision; Global
Legal-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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2017: Issue 161