Dual Banking and Financial Contagion

Mahmoud Nabi

No 776, Working Papers from Economic Research Forum

Abstract: This paper builds a theoretical model based on Allen and Gale (2000) to analyze how an unexpected shock affecting the banking assets in one region can generate bankruptcy in a second region. I also analyze the effect of the presence of an Islamic bank in a third region on the vulnerability of conventional banks to financial contagion. It is shown that the Islamic bank’s assets diversification strategy across the regions reduces the likelihood of financial contagion among conventional banks.

Pages: 25
Date: 2013-09, Revised 2013-09
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Citations: View citations in EconPapers (1)

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Journal Article: Dual Banking and Financial Contagion (2012)
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