Title: Towards sustainable bank bailouts

Authors: Sara AlBalooshi; Sara Alfaihani; Rabab Ebrahim

Addresses: Department of Economics and Finance, College of Business Administration, University of Bahrain, P.O. Box 32038, Shakir, Bahrain ' Department of Economics and Finance, College of Business Administration, University of Bahrain, P.O. Box 32038, Shakir, Bahrain ' Department of Economics and Finance, College of Business Administration, University of Bahrain, P.O. Box 32038, Shakir, Bahrain

Abstract: This paper investigates the viability of using Islamic financing products in government bailout schemes. Empirically, we examine the association between bank sustainability and the different Islamic financing products, equity-based and debt-based. We use a multilevel model and an unbalanced panel hand-collected banking data of GCC banks over the period 2006-2016. The findings show that the Islamic equity-based financing products (profit-loss-sharing and Islamic futures-like products) significantly promote bank sustainability, while the debt-like products (Sukuk and Fixed-income) will lead to more fragile banks. These findings will be of interest to central banks and policy makers while considering bailout options for banks. The bailout funds should be regulated and directed toward Islamic equity-based financing products to maintain sustainability of the rescue funds, banking system and the general economy.

Keywords: bank bailout; equity; Islamic banking; profit-loss-sharing; sustainability.

DOI: 10.1504/IJEBR.2024.141496

International Journal of Economics and Business Research, 2024 Vol.28 No.3/4, pp.417 - 436

Received: 05 Apr 2022
Accepted: 22 Jun 2022
Published online: 18 Sep 2024 *

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