Determinants of Banking Stability: Evidence from Haiti’s Banking System

The 2007-2009 Global Financial Crisis showed that despite reported as ‘healthy’ financial institution prior to crisis had indeed suffered many problems including liquidity during the crisis. Thus, there is confusion on the healthy financial institutions, leading to loss of confidence on the overall stability of the banking system. Thus, there is an urgent need to review the current measures of financial as well as banking stability. This paper aims to look at the definition of ‘stability’ used in the academic researches and by different regulatory bodies, like International Monetary Fund, Basel Committee for Banking Supervision (BCBS) and central banks in selected countries with dual banking systems. It is then, critically review indicators used as measures of financial as well as banking stability. This review is hope to identify areas of strengths as well as weaknesses of the current measures of stability and serves as foundation for further research in future.

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BANK RUN AND STABILITY OF ISLAMIC BANKING IN INDONESIA

Journal of Islamic Monetary Economics and Finance ◽

10.21098/jimf.v3i1.709 ◽

2017 ◽

Vol 3 (1) ◽

pp. 25-60 ◽

Cited By ~ 1

Author(s):

Rahmatina A. Kasri ◽

Tika Arundina ◽

Kenny D. Indraswari ◽

M. Budi Prasetyo

Keyword(s):

Factor Analysis ◽

Financial Stability ◽

Banking System ◽

Bank Runs ◽

Primary Data ◽

Islamic Banking ◽

Islamic Banks ◽

Bank Run ◽

Banking Stability ◽

Conventional Banks

Bank run is an important economic phenomenon which increasingly occurred in in modern banking system and potentially threatened banking stability as it could trigger a banking crisis. However, most studies related to bank run focus on the occurrence of bank run in conventional banking system. Very few of them discuss the bank run phenomenon under Islamic banking system or dual banking system where Islamic banks jointly operating with conventional banks. Therefore, this study attempts to analyze the determinants of bank run in the Indonesian Islamic banking industry by employing primary data from 256 customers of Indonesia Islamic banks in 2015 and by utilizing factor analysis and descriptive statistics. In theory, Islamic banks tend to be more resilient towards any macroeconomic or financial shocks as compared to conventional banks due to the nature of its asset-based and risk-sharing arrangement. However, the result exhibits that both psychological and fundamental factors (i.e. macroeconomics and bank fundamentals) strongly influence the behaviors of Islamic banking depositors to withdraw their funds, which might trigger the occurrence of bank runs in the country. Insider information, macroeconomic condition and bank fundamental factors are also shown to have the highest impacts among all variables. Hence, in the context of banking stability, the finding implies that Islamic banks are not completely immune to the impacts of macroeconomic shocks or financial crisis. As a country with a dual banking system, Indonesia had experienced several bank runs since 1990s. Therefore, the findings of the study should provide the policy makers important insight into research based-policy in order to attain financial stability as one of the main economic goals of the country.Keywords: Bank run, Islamic bank, Factor analysis, IndonesiaJEL Classification: C83, G21, G28

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THE REGIME SWITCHING OF CYCLE INSTABILITY OF ISLAMIC BANKING AND THE ECONOMY: EVIDENCE FROM INDONESIA, MALAYSIA, AND PAKISTAN

Journal of Islamic Monetary Economics and Finance ◽

10.21098/jimf.v7i2.1362 ◽

2021 ◽

Vol 7 (2) ◽

pp. 233-262

Author(s):

Irfan Nurfalah ◽

Aam Slamet Rusydiana

Keyword(s):

Regime Switching ◽

Markov Switching ◽

Banking System ◽

Research Data ◽

Public Confidence ◽

Islamic Banking ◽

Z Score ◽

Proxy Variable ◽

The Public ◽

Banking Stability

This study aims to examine the cyclical instability of Islamic banking in Indonesia, Malaysia, and Pakistan. A stable Islamic banking system can give the public confidence to conduct transactions and thus grow the economy. The proxy variable for stability used is the z-score, with 156 periods of research data from January 2007 to December 2019. The Markov Switching Vector Autoregression (MS-VAR) method was employed. The results show that Islamic banking stability in Indonesia based on the z-score is more stable than others. Nevertheless, in terms of the regression of all the variables, regime shifting, and the duration of the crisis, overall Malaysian Islamic banking displays the best performance. The instability of the Indonesian model is mostly affected by inflation, whereas Malaysia and Pakistan are affected by the financing to deposit ratio and the fluctuation in global oil, respectively.

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The Power of Delay: Banking System Structure and Implementation of the Basel Accords

Business and Politics ◽

10.1017/bap.2021.16 ◽

2021 ◽

pp. 1-17

Author(s):

Christopher Mitchell

Keyword(s):

Direct Action ◽

Banking System ◽

System Structure ◽

Basel Iii ◽

International Banking ◽

Structural Power ◽

Financial Firms ◽

National Comparison ◽

Recent Developments ◽

Banking Stability

Abstract Recent developments in the international banking system, especially the 2007–9 crisis and subsequent wave of postcrisis regulation, have drawn increasing attention to the structural power of banks and banking systems. States need a functioning financial system to ensure the overall health of their economies, so states must shape policy to protect their financial firms. National financial systems may be dominated either by banks or by capital markets. In states where banks dominate provision of capital, states must shape policy to protect their banks because of their structural importance, independent of any lobbying or other direct action on the part of banks to exercise instrumental power. The entangling of structural and instrumental power means studying differences in structural power requires either careful case-study work or cross-national comparison of responses to a common shock. The implementation of the 2011 Basel III Accords provides just such an opportunity. This article offers a quantitative analysis of a new dataset of implementation of Basel III components in the Basel Committee on Banking Stability member states from 2011 to 2019 and demonstrates the structural power of banks in bank-based systems to accelerate implementation of favorable policies and slow implementation of unfavorable ones.

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Testing the interrelatedness of banking stability measures

Journal of Financial Economic Policy ◽

10.1108/jfep-01-2013-0002 ◽

2014 ◽

Vol 6 (1) ◽

pp. 25-45 ◽

Cited By ~ 4

Author(s):

Vighneswara Swamy

Keyword(s):

Emerging Economies ◽

Financial Stability ◽

Banking System ◽

Financial System ◽

Capital Adequacy ◽

System Stability ◽

Var Model ◽

Content Type ◽

Banking Stability ◽

Asset Quality

Purpose – This study aims to investigate the inter-relatedness and the dynamics of banking stability measures and offers answers for some of the related issues such as does financial stability require the soundness of banking institutions, the stability of markets, the absence of turbulence and low volatility? and to what extent the soundness of banking sector in the case of emerging economies can help financial system stability. Design/methodology/approach – This study investigates banking stability by structuring a recursive micro panel vector auto regressive (VAR) model and corroborates the significance of the interrelatedness of the bank-specific variables such as liquidity, asset quality, capital adequacy and profitability by employing a robust panel data drawn from 56 leading banks for a period of 12 years. Findings – A significant contribution of this study is in establishing that liquidity in the banking-dominated financial system is reciprocally related with asset quality, capital adequacy, and profitability of the banking system and in effectively forecasting banking stability employing micro panel recursive VAR model. Research limitations/implications – The study could be further broadened by employing a macro and structural VAR modelling to forecast banking stability. Practical implications – This paper is one among the evolving body of literature that underscores the significant relationship between banking system resilience and financial stability in the context of emerging economies dominated with banking systems. Further, the forecast model is able to capture the dynamics of banking stability with greater and appreciable accuracy. Originality/value – The uniqueness of the study is in modelling banking stability measures in the context of banking-dominated emerging economy financial systems by employing micro panel recursive VAR model by deriving data from 58 leading banks for the period of 12 years from 1996 to 2009 and in offering insights in understanding financial stability with comprehensive literature review.

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EVALUATING STABILITY IN DUAL BANKING SYSTEM: COMPARISON BETWEEN CONVENTIONAL AND ISLAMIC BANKS IN MALAYSIA

Humanities & Social Sciences Reviews ◽

10.18510/hssr.2019.7260 ◽

2019 ◽

Vol 7 (2) ◽

pp. 510-518

Author(s):

Omar Alaeddin ◽

Ahmed Khattak ◽

Moutaz Abojeib

Keyword(s):

Financial Crises ◽

Banking Sector ◽

Banking System ◽

Central Banks ◽

Islamic Banks ◽

Policy Makers ◽

Banking Stability ◽

Widespread Belief ◽

Conventional Banks ◽

Conventional And Islamic Banks

Purpose of Study: This paper aims to explore whether Islamic banks are more stable when compared with conventional banks in a dual banking system. Methodology: This research employs Pooled OLS methodology for 42 banks, including 27 conventional banks and 15 Islamic banks, for the period of 2005-2016. Results: The study suggests that Islamic banks are less stable compared to conventional banks in overall banking sector. Furthermore, it is found that big Islamic banks are less stable than big conventional banks and small Islamic banks are less stable than small conventional banks. The results disapprove of the widespread belief that Islamic banks are more stable and more resilient to adverse shocks in the financial crisis. Moreover, while investigating the shift in overall level of banking stability with respect to financial crises, regardless of bank type and bank size, it is observed that the overall banking stability is enhanced after the financial crises. This is intriguing and a sigh of relief for policy makers and regulators in the country. Implications/Applications: This research is of contribution to policy makers and central banks in the countries with highly dual banking environment and for the central banks striving to become International Islamic financial hub.

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STABILITAS SISTEM PERBANKAN DAN KEBIJAKAN MONETER : KETERKAITAN DAN PERKEMBANGANNYA DI INDONESIA

Buletin Ekonomi Moneter dan Perbankan ◽

10.21098/bemp.v8i4.144 ◽

2007 ◽

Vol 8 (4) ◽

Cited By ~ 1

Author(s):

Perry Warjiyo

Keyword(s):

Monetary Policy ◽

Banking System ◽

Monetary Transmission ◽

Crisis Period ◽

Credit Risks ◽

Major Market ◽

Market Risks ◽

Transmission Mechanisms ◽

Excess Liquidity ◽

Banking Stability

This paper reviews the inter-linkage between banking stability and monetary policy, with a reference to the Indonesian case since the 1997 crisis. In particular, it shows how monetary transmission mechanism would be inhibited and thus monetary policy would not be effective when the banking system is not sound and stable, such as during a crisis period. Conversely, the stance and response of monetary policy would have significant impacts on banking stability as inflation, exchange rate, and interest rate constitute major market risks to banking operations. For Indonesia, a close inter-linkage between banking instability and monetary policy ineffectiveness has been vividly evidenced during the crisis period of 1997 – 1999. Subsequently, however, with progress of the banking restructuring programs that Indonesia authorities have undertaken, the banking conditions have imporved considerably since 2000. As banking intermediation improved, not only has financing to economic growth increased but also monetary transmission mechanisms strengthened considerably. Nonetheless, excess liquidity that banking system is still experiencing, especially because of lack of feasible investment outlests in the real sector and high perceived credit risks from the bankers, poses serious challenges to the central bank for better coordination and striking the optimal balance between maintaining monetary and banking stability while continue to promoting economic growth.Keyword: banking stability, monetary policy, IndonesiaJEL : G21, E52, N25

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The evaluation of stability of Czech and Slovak banks

Oeconomia Copernicana ◽

10.24136/oc.2018.011 ◽

2018 ◽

Vol 9 (2) ◽

pp. 205-223

Author(s):

Kristina Kocisova ◽

Beata Gavurova ◽

Marcel Behun

Keyword(s):

Banking Sector ◽

Banking System ◽

Value Added ◽

Stability Index ◽

Financial Indicators ◽

Z Score ◽

Banking Stability ◽

Two Measures ◽

The Stability ◽

Main Components

Research background: Commercial banks could affect the stability of the whole banking system due to the way they carry out their business activities. The supervision authorities play a key role in protecting banking stability by ensuring banks´ resilience to shocks, ability to recover their position in response to crisis and ultimately the supervision authorities help prevent failure of these banks. Therefore, in recent years’ researchers have been trying to define conditions that could guarantee stability of banks. Purpose of the article: This paper aims to describe the methodology used to measure banking stability, namely banking stability index (BSI) and Z-score. In the first part, we present the literature review, then we try to assess the stability in the condition of the Czech Republic and Slovakia during the period 2006–2016. Methods: The BSI is constructed according to the methodology presented by Ghosh (2011), taking into account the main components, which are described by the set of financial indicators of banks. Findings & Value added: Results showed that the average BSI in the whole sample moved from 0.20454 (in 2015) to 0.2486 (in 2007). The results according to countries have showed that the tendency of development in the Czech and Slovak banking sector was the same. At the beginning of the analyzed period, the Slovak banks were more stable compared to Czech ones. Since 2009 the situation has been different, where the Czech banks could be considered as more stable compared to Slovak ones. The tendency of development of Z-score in both countries could be considered as the same, without the 2009 year, when the Czech banks significantly strengthened their capitalization, which influenced the development of Z-score. The results of correlation analysis between Z-score and BSI pointed to the fact that there was no high correlation between these two measures, therefore it is appropriate to use both methodologies for stability evaluation.

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Banks’ stability-efficiency within dual banking system: a stochastic frontier analysis

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-12-2014-0121 ◽

2015 ◽

Vol 8 (4) ◽

pp. 472-490 ◽

Cited By ~ 15

Author(s):

Salma Louati ◽

Younes Boujelbene

Keyword(s):

Financial Stability ◽

Banking Sector ◽

Stochastic Frontier Analysis ◽

Stochastic Frontier ◽

Banking System ◽

Content Type ◽

Frontier Analysis ◽

Explanatory Variables ◽

Banking Stability ◽

Conventional Banks

Purpose – The purpose of this paper is to examine and compare the market power and the efficiency-stability of Islamic and conventional banks in the MENA zone and South East Asia during the 2005-2012 period. Design/methodology/approach – The author applied an empirical approach in two steps. First, the author estimates the Lerner indicator, which is a measure of competition. Then, this measure is regressed and other explanatory variables on the banking “stability-efficiency” are derived simultaneously from the estimation of a stability stochastic frontier. Findings – The author concludes that increased competition in the Islamic banking sector promotes the overall banking stability. Besides, whether there is a low or high competitiveness, the size of an Islamic bank is positively related to financial stability. However, large conventional banks operating in market with limited competitiveness become more involved in the risk behavior. The author concludes that capitalization has a positive effect on stability only in case of low competitiveness. Originality/value – The originality of this research lies in the application of the stochastic frontier approach (SFA) on the Z-score indicator. This methodology enables to take into account the differences between the current and the optimum stability that each bank can achieve, thus creating a new measure of financial stability called “efficiency-stability”.

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The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression

The Journal of Economic History ◽

10.1017/s0022050700015072 ◽

1994 ◽

Vol 54 (3) ◽

pp. 654-682 ◽

Cited By ~ 72

Author(s):

Richard S. Grossman

Keyword(s):

Great Depression ◽

Banking System ◽

Macroeconomic Policy ◽

Exchange Rate Policy ◽

Commercial Banking ◽

Lender Of Last Resort ◽

The Great Depression ◽

Rate Policy ◽

Banking Stability ◽

And Performance

This article attempts to account for the exceptional stability exhibited by the banking systems of Britain, Canada, and ten other countries during the Great Depression. It considers three possible explanations of stability—the structure of the commercial banking system, macroeconomic policy and performance, and lender of last resort behavior—employing data from 25 countries across Europe and North America. The results suggest that macroeconomic policy—especially exchange-rate policy—and banking structure, but not lenders of last resort, were systematically responsible for banking stability.

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