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Depositor Sensitivity to Risk of Islamic and Conventional Banks: Evidence from Indonesia

The International Journal of Business and Finance Research, Vol. 5 No. 3, pp. 29-44, 2011

16 Pages Posted: 6 Jul 2011  

Erie Febrian

University of Padjadjaran

Aldrin Herwany

Universitas Padjadjaran - Faculty of Economics and Business; Padjadjaran University - Center for Management & Business Studies (LMFE)

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Date Written: 2011

Abstract

Islamic banks operate without involving interest, and therefore are believed to be less risky during financial crises than conventional banks. This advantage may not be significant if the government either partially or fully guarantees bank deposits. In the presence of deposit insurance the public can be indifferent to risk of both Islamic and conventional banks. However, insufficient studies have examined the issue of deposit insurance impact on depositor behavior and market discipline. This research conducts empirical tests on whether the risk of Islamic and conventional banks influence depositors in Indonesia, during two periods using cross-sectional analysis. This research also investigates the behavior of Indonesian depositors towards risk of both bank types during the US crisis through panel data analysis. Data from all insured domestic banks in Indonesia, from January 2002 to December 2009 are examined.

Keywords: Bank Risk, Deposit Insurance, Market Discipline, Islamic Bank

JEL Classification: G21

Suggested Citation

Febrian, Erie and Herwany, Aldrin, Depositor Sensitivity to Risk of Islamic and Conventional Banks: Evidence from Indonesia (2011). The International Journal of Business and Finance Research, Vol. 5 No. 3, pp. 29-44, 2011. Available at SSRN: https://ssrn.com/abstract=1879409

Erie Febrian (Contact Author)

University of Padjadjaran ( email )

Jl. Dipatiukur 35
Bandung, West Java 40132
Indonesia

Aldrin Herwany

Universitas Padjadjaran - Faculty of Economics and Business ( email )

Jl. Dipatiukur 35
Jl Cimandiri No. 8
Bandung, West Java 40132
Indonesia

Padjadjaran University - Center for Management & Business Studies (LMFE) ( email )

Jl. Cimandiri No. 8
Bandung, West Java 40132
Indonesia
+62224239954 (Phone)
+62224239954 (Fax)

HOME PAGE: http://www.lm.fe.unpad.ac.id/

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