Basel Accords and Islamic finance with special reference to Malaysia

Zubair Hasan

MPRA Paper from University Library of Munich, Germany

Abstract: The worldwide colossal failures of financial institutions in the wake of the 2007–2010 financial turmoil the yesteryear advocates of liberalization and privatization converted almost overnight into vocal supporters of raising the safety walls around the interests of various stakeholders, especially the depositors. Admittedly, it was the heightened lure of leverage gains that led the financial institutions to expand credit beyond what the volume and quality of their capital assets warranted without crossing the limits of safety. The devastation led to a focus-shift so to say at the national and international levels in finance specifically to capital adequacy that financial institutions must observe for their own safety as also in the wider social interest. Stringent and regular watch was needed; it was felt, to make adequacy work. The Basel Committee on Banking Supervision (BCBS), an organ of the Bank for International Settlements (BIS) developed what are known as Accords i.e.agreements defining capital and its adequacy for banks to limit the risks they could take within reasonable confines. It is interesting to find that Malaysia was in a sense predictive to revamp and strengthen its own regulatory framework. Also, the IFSB was alert to announce some new standards.This paper briefly takes stock of these developments with a view to assess how far Basel Accords are likely to be absorbed by the Islamic system.

Keywords: Islamic finance; Capital Adequacy; Basel Accords; Shari’ah compliance; Bank Negara action. (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2014-01-15
New Economics Papers: this item is included in nep-rmg and nep-sea
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