Heterogeneous market structure and systemic risk: Evidence from dual banking systems

Pejman Abedifar, Paolo Giudici and Shatha Qamhieh Hashem

Journal of Financial Stability, 2017, vol. 33, issue C, 96-119

Abstract: This paper investigates how banking system stability is affected when we combine Islamic and conventional finance under the same roof. We compare systemic resilience of three types of banks in six GCC member countries with dual banking systems: fully-fledged Islamic banks (IB), purely conventional banks (CB) and conventional banks with Islamic windows (CBw). We employ market-based systemic risk measures such as MES, SRISK and CoVaR to identify which sector is more vulnerable to a systemic event. We also compute weighted average GES to determine which sector is most synchronised with the market. Moreover, we use graphical network models to determine the most interconnected banking sector that can more easily spread a systemic shock to the whole system. Using a sample of observations on 79 publicly traded banks operating over the 2005–2014 period, we find that CBw is the least resilient sector to a systemic event, it has the highest synchronicity with the market, and it is the most interconnected banking sector during crisis times.

Keywords: Graphical network models; Islamic banking; Partial correlations; Systemic risk measures (search for similar items in EconPapers)
JEL-codes: C58 G21 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1572308917301201
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Heterogeneous Market Structure and Systemic Risk: Evidence from Dual Banking Systems (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:33:y:2017:i:c:p:96-119

DOI: 10.1016/j.jfs.2017.11.002

Access Statistics for this article

Journal of Financial Stability is currently edited by I. Hasan, W. C. Hunter and G. G. Kaufman

More articles in Journal of Financial Stability from Elsevier
Bibliographic data for series maintained by Catherine Liu ().