Asset securitizations and bank stability: Evidence from different banking systems

Omneya Abdelsalam, Marwa Elnahass, Ahmed Habib () and Julian Williams

Global Finance Journal, 2022, vol. 51, issue C

Abstract: The issuance of asset securitization has been subject to a substantial debate by financial regulators and practitioners post the financial crisis of 2008. This study examines the impact of asset securitizations on the performance and financial stability of banks in a dual banking system (Islamic and conventional). Using a unique sample of international banks located in 21 countries, our results provide strong evidence that banks involved in asset securitization are generally riskier and less financially stable. When we comparatively assess the different structures of securitization conditioned on the bank type (i.e. Islamic versus conventional securitization), these two models of asset securitizations show differential effects on bank stability. Unlike conventional securitization, which is marked by significantly low bank stability, an issuance of Islamic securitization leads to lower bank risk. This evidence is prevalent among the two bank types during the financial crisis of 2008–2009 and within non-crisis years. We attribute these findings to the distinctive monitoring and the constraints included in the Islamic model of securitization. The study provides new insights into alternative structures of bank securitization, offering policy implications for regulators governing countries with dual-banking systems.

Keywords: Asset securitization; Bank risk; Financial stability; Bank type (search for similar items in EconPapers)
JEL-codes: C23 G01 G21 G28 L50 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:51:y:2022:i:c:s1044028319302856

DOI: 10.1016/j.gfj.2020.100551

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