BANK RESILIENCE AND POLITICAL INSTITUTIONS: DO BANKING BUSINESS MODELS MATTER?

Wajahat Azmi (), Mohsin Ali () and Muhammad Umar Islam ()
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Wajahat Azmi: Thiagarajar School of Management, India
Mohsin Ali: School of Business, Monash University Malaysia, Malaysia
Muhammad Umar Islam: Asia Pacific University of Technology and Innovation, Malaysia

Journal of Islamic Monetary Economics and Finance, 2023, vol. 9, issue 2, 295-312

Abstract: This paper investigates the effect of political institutions on bank stability of dual banking countries. Applying the two-step GMM approach to a panel sample of Islamic and conventional banks from 2005 to 2020, we arrive at the following results. First, we observe that the quality of political institutions leads to more stable banking system, which is in line with the view that quality political institutions improve the transparency, thereby reducing adverse selection and leading to overall improvement in the banking stability. Second, when we look at components of political institutions, we document the significance of the voice and accountability dimension in enhancing bank stability. Finally, as a side result, we find evidence that competition leads to stability for Islamic banks. These findings are robust to several robustness tests. The implications of our findings are provided in the paper.

Keywords: Political institutions; Stability; Islamic banks; Dual banking (search for similar items in EconPapers)
JEL-codes: G21 G33 G38 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:idn:jimfjn:v:9:y:2023:i:2e:p:295-312

DOI: 10.21098/jimf.v9i2.1640

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