Liquidity Creation Performance and Financial Stability Consequences of Islamic Banking: Evidence from a Multinational Study

55 Pages Posted: 11 Nov 2018 Last revised: 8 May 2019

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Omrane Guedhami

University of South Carolina - Moore School of Business

Xinming Li

University of South Carolina, Darla Moore School of Business, Department of Finance

Date Written: April 10, 2019

Abstract

Despite the growth of Islamic banks (IBs), little is known about their liquidity creation performance and financial stability consequences relative to conventional banks (CBs). We address these issues using data from 24 countries over 2000–2014. We find IBs create more liquidity per unit of assets than CBs, primarily on the asset side of the balance sheet. Results are economically significant, econometrically robust, hold in high- and low-income countries, and during the Global Financial Crisis and other times. In addition, CB liquidity creation results in reduced national financial stability, particularly in high-income countries, whereas IB liquidity creation does not.

Keywords: Islamic Banks; Bank Liquidity Creation; Financial Stability

JEL Classification: G15, G21, G28

Suggested Citation

Berger, Allen N. and Boubakri, Narjess and Guedhami, Omrane and Li, Xinming, Liquidity Creation Performance and Financial Stability Consequences of Islamic Banking: Evidence from a Multinational Study (April 10, 2019). Available at SSRN: https://ssrn.com/abstract=3278032 or http://dx.doi.org/10.2139/ssrn.3278032

Allen N. Berger

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Xinming Li (Contact Author)

University of South Carolina, Darla Moore School of Business, Department of Finance ( email )

1014 Greene Street
Columbia, SC 29208
United States

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