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All Journal Journal of Islamic Monetary Economics and Finance International Journal of Islamic Economics (IJIE)
Wajahat Azmi
Thiagarajar School of Management, India
Economics, Econometrics & Finance

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BANK RESILIENCE AND POLITICAL INSTITUTIONS: DO BANKING BUSINESS MODELS MATTER? Wajahat Azmi; Mohsin Ali; ‪Muhammad Umar Islam
Journal of Islamic Monetary Economics and Finance Vol 9 No 2 (2023)
Publisher : Bank Indonesia

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21098/jimf.v9i2.1640

Abstract

This paper investigates the effect of political institutions on bank stability of dual banking countries. Applying the two-step GMM approach to a panel sample of Islamic and conventional banks from 2005 to 2020, we arrive at the following results. First, we observe that the quality of political institutions leads to more stable banking system, which is in line with the view that quality political institutions improve the transparency, thereby reducing adverse selection and leading to overall improvement in the banking stability. Second, when we look at components of political institutions, we document the significance of the voice and accountability dimension in enhancing bank stability. Finally, as a side result, we find evidence that competition leads to stability for Islamic banks. These findings are robust to several robustness tests. The implications of our findings are provided in the paper.
The Bank Lending Channel in Dual Banking Systems: How Market Power Shapes Monetary Policy Effectiveness Kinan Salim; Moutaz Abojeib; Wajahat Azmi; Mhd Osama Alchaar
Jurnal Internasional Ekonomi Islam Vol 5 No 02 (2023): International Journal of Islamic Economics
Publisher : The Postgraduate of Institut Agama Islam Negeri Metro Lampung

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.32332/ijie.v5i02.8057

Abstract

This paper investigates the effectiveness of the bank lending channel as a mechanism for monetary policy transmission in dual banking systems. Using generalized method of moments (GMM) estimators, we examine how market power and the presence of Islamic banks influence the bank lending channel. Our empirical results reveal that the effectiveness of this channel is conditional on the degree of market power. Specifically, we find that increases in interest rates are effective in altering bank lending only when the Lerner index, a measure of market power, reaches the threshold of 0.35. This suggests that the bank lending channel is only effective in markets with lower to average levels of competition (i.e. high market power). Additionally, we identify unique characteristics of Islamic banks that warrant further research for a comprehensive understanding of their role in the bank lending channel. Our study has important policy implications, particularly for emerging economies and dual banking systems, where regulatory measures may need to consider the intricate balance between market competition and effective monetary policy
Co-Authors Kinan Salim Mhd Osama Alchaar Mohsin Ali Moutaz Abojeib ‪Muhammad Umar Islam