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Impact of bank regulation on risk of Islamic and conventional banks
Hafiz Hoque 
,
Heng Liu
,
Heng Liu
International Journal of Finance & Economics, Volume: 28, Issue: 1, Pages: 1025 - 1062
Swansea University Author:
Hafiz Hoque
-
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DOI (Published version): 10.1002/ijfe.2462
Abstract
We analyse the impact of bank regulation on the risks of Islamic banks (IBs) and conventional banks (CBs) between 2004 and 2015 by employing 455 CBs and 95 IBs from 22 countries where IBs and CBs coexist. Since the objective of Basel regulations is to achieve a stable banking sector by mitigating ri...
| Published in: | International Journal of Finance & Economics |
|---|---|
| ISSN: | 1076-9307 1099-1158 |
| Published: |
Wiley
2023
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| URI: | https://cronfa.swan.ac.uk/Record/cronfa59596 |
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2023-03-09T15:17:15.9722694 v2 59596 2022-03-13 Impact of bank regulation on risk of Islamic and conventional banks 06d1239b4524fff9c0a0f52a2a368910 0000-0002-4354-3895 Hafiz Hoque Hafiz Hoque true false 2022-03-13 BAF We analyse the impact of bank regulation on the risks of Islamic banks (IBs) and conventional banks (CBs) between 2004 and 2015 by employing 455 CBs and 95 IBs from 22 countries where IBs and CBs coexist. Since the objective of Basel regulations is to achieve a stable banking sector by mitigating risks, we examine the impact of bank regulations on various risks of IBs and CBs by using a regression framework. We examine solvency risk, credit risk, idiosyncratic risk and systemic risk by using capital oversight, restriction on activities, private monitoring and supervisory power bank regulation data provided by the World Bank. The findings show that though the Basel regulations were originally developed for CBs, our results imply that they are effective for IBs as well as CBs. However, our study also shows that regulations affect IBs and CBs differently as their business models are different. More targeted regulations towards IBs would be necessary to support IBs. Additionally, in regions with higher economic freedom indexes, banking regulations can mitigate the risk of IBs and CBs to a greater extent. Our results imply that the combination of free economic policies and banking supervision addresses risks in banking effectively. Finally, the bank regulations did not appear to be able to control the risk of the sample banks during the 2007–2009 crisis. Hence, the Basel committee needs to rethink about regulations during crisis times. Journal Article International Journal of Finance & Economics 28 1 1025 1062 Wiley 1076-9307 1099-1158 bank regulation, financial crisis, insolvency risk, Islamic banking, systemic risk 1 1 2023 2023-01-01 10.1002/ijfe.2462 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2023-03-09T15:17:15.9722694 2022-03-13T13:48:51.7411725 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Hafiz Hoque 0000-0002-4354-3895 1 Heng Liu 0000-0003-1607-8067 2 59596__22651__c0a11fcb98ff4970ac26f4a121adc196.pdf 59596.pdf 2022-03-22T16:01:16.0443559 Output 2440402 application/pdf Version of Record true © 2021 The Authors. This is an open access article under the terms of the Creative Commons Attribution License true eng http://creativecommons.org/licenses/by/4.0/ |
| title |
Impact of bank regulation on risk of Islamic and conventional banks |
| spellingShingle |
Impact of bank regulation on risk of Islamic and conventional banks Hafiz Hoque |
| title_short |
Impact of bank regulation on risk of Islamic and conventional banks |
| title_full |
Impact of bank regulation on risk of Islamic and conventional banks |
| title_fullStr |
Impact of bank regulation on risk of Islamic and conventional banks |
| title_full_unstemmed |
Impact of bank regulation on risk of Islamic and conventional banks |
| title_sort |
Impact of bank regulation on risk of Islamic and conventional banks |
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06d1239b4524fff9c0a0f52a2a368910 |
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06d1239b4524fff9c0a0f52a2a368910_***_Hafiz Hoque |
| author |
Hafiz Hoque |
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Hafiz Hoque Heng Liu |
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International Journal of Finance & Economics |
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28 |
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1025 |
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2023 |
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Swansea University |
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1076-9307 1099-1158 |
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10.1002/ijfe.2462 |
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Wiley |
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Faculty of Humanities and Social Sciences |
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| description |
We analyse the impact of bank regulation on the risks of Islamic banks (IBs) and conventional banks (CBs) between 2004 and 2015 by employing 455 CBs and 95 IBs from 22 countries where IBs and CBs coexist. Since the objective of Basel regulations is to achieve a stable banking sector by mitigating risks, we examine the impact of bank regulations on various risks of IBs and CBs by using a regression framework. We examine solvency risk, credit risk, idiosyncratic risk and systemic risk by using capital oversight, restriction on activities, private monitoring and supervisory power bank regulation data provided by the World Bank. The findings show that though the Basel regulations were originally developed for CBs, our results imply that they are effective for IBs as well as CBs. However, our study also shows that regulations affect IBs and CBs differently as their business models are different. More targeted regulations towards IBs would be necessary to support IBs. Additionally, in regions with higher economic freedom indexes, banking regulations can mitigate the risk of IBs and CBs to a greater extent. Our results imply that the combination of free economic policies and banking supervision addresses risks in banking effectively. Finally, the bank regulations did not appear to be able to control the risk of the sample banks during the 2007–2009 crisis. Hence, the Basel committee needs to rethink about regulations during crisis times. |
| published_date |
2023-01-01T04:17:02Z |
| _version_ |
1763754138513965056 |
| score |
11.0127 |