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Competition, regulation, and systemic risk in dual banking systems

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submitted on 2024-05-15, 08:22 and posted on 2024-05-15, 08:23 authored by Indria Ernaningsih, Houcem Smaoui, Ines Ben Salah

This study investigates the impact of competition and banking regulation on the systemic risk of Islamic Banks (IBs) and Conventional Banks (CBs). Utilizing a random effects panel model with robust errors and an unbalanced panel data set encompassing 80 IBs and 204 CBs from 17 emerging market countries spanning 2000 to 2019, we show that the lack of competition increases systemic risk exposure, which may stem from the interconnection channels and the individual bank risk contributions. Interestingly, this effect is not significantly different between IBs and CBs. Our results also reveal a non-linear relationship between competition and systemic risk. Specifically, greater competition leads to increased systemic stability, but beyond a certain threshold, higher competition exacerbates banks' systemic risk. Additionally, we find that larger banks are more vulnerable to systemic risk, and the lack of competition worsens this vulnerability. We also show that banks with greater market power after the GFC are more exposed to systemic risk.

Other Information

Published in: International Review of Economics & Finance
License: http://creativecommons.org/licenses/by/4.0/
See article on publisher's website: https://dx.doi.org/10.1016/j.iref.2024.03.078

Funding

Open Access funding provided by the Qatar National Library.

History

Language

  • English

Publisher

Elsevier

Publication Year

  • 2024

License statement

This Item is licensed under the Creative Commons Attribution 4.0 International License.

Institution affiliated with

  • Qatar University
  • College of Business and Economics - QU

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