Are Islamic Banks More Resilient during Financial Panics?
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Summary:
Rapid growth of Islamic banking in developing countries is accompanied with claims about its relative resilience to financial crises as compared to conventional banking. However, little empirical evidence is available to support such claims. Using data from Pakistan, where Islamic and conventional banks co-exist, we compare these banks during a financial panic. Our results show that Islamic bank branches are less prone to deposit withdrawals during financial panics, both unconditionally and after controlling for bank characteristics. The Islamic branches of banks that have both Islamic and conventional operations tend to attract (rather than lose) deposits during panics, which suggests a role for religious branding. We also find that Islamic bank branches grant more loans during financial panics and that their lending decisions are less sensitive to changes in deposits. Our findings suggest that greater financial inclusion of faith-based groups may enhance the stability of the banking system.
Series:
Working Paper No. 2015/041
Subject:
Asset and liability management Bank credit Banking Commercial banks Financial crises Financial institutions Financial services Islamic banking Liquidity Loans
English
Publication Date:
February 26, 2015
ISBN/ISSN:
9781484380628/1018-5941
Stock No:
WPIEA2015041
Pages:
29
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