Title: Contribution of Islamic banks to systemic risk

Authors: Mohamed Amin Chakroun; Mohamed Imen Gallali

Addresses: Department of Finance, Business School of Tunis, Laboratory of Risk Management and Research in Accounting and Finance, University of Manouba, 2010, Tunis, Tunisia ' Department of Finance, Business School of Tunis, Laboratory of Risk Management and Research in Accounting and Finance, University of Manouba, 2010, Tunis, Tunisia

Abstract: This study aims to compare Islamic to conventional banks in order to examine their contribution to systemic risk. It examines listed banks from six Middle Eastern countries using the marginal expected shortfall (MES) method to measure dynamic individual systemic risk. We then try to determine the factors affecting these systemic risk levels for each type of bank. Finally, we refer to the panel VAR model estimated by GMM to determine the impact of the shock in each type of bank's effect on financial stability. The main results show that conventional banks present a significant systemic risk than Islamic banks. This result does not prove that Islamic banks do not present a real danger to the overall system's stability. On the contrary, they significantly contribute to systemic risk mainly during unstable periods. We conclude that market risk and bank size represent the main factors that positively affect systemic risk of Islamic banks.

Keywords: Islamic finance; systemic risk; marginal expected shortfall; MES; GJR-DCC; panel VAR.

DOI: 10.1504/IJBAAF.2017.085329

International Journal of Banking, Accounting and Finance, 2017 Vol.8 No.1, pp.52 - 92

Received: 07 Apr 2016
Accepted: 25 Mar 2017

Published online: 18 Jul 2017 *

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