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1 – 10 of over 3000The purpose of this study is to explore how the unprecedented rise in the economic policy uncertainty influence Indian banking sector stability. The unprecedented rise in the…
Abstract
Purpose
The purpose of this study is to explore how the unprecedented rise in the economic policy uncertainty influence Indian banking sector stability. The unprecedented rise in the economic policy uncertainty during the recent pandemic has garnered the attention of policymakers to investigate its consequences on different sectors of the economy.
Design/methodology/approach
In this quest, the present study uses system generalized method of moments and other econometric tools to examine the influence of economic policy uncertainty on the Indian banking sector, covering the time frame from 2000 to 2022. In addition, the current study also investigates the mediating role of regulation and supervision in the nexus of economic policy uncertainty and the Indian banking sector stability.
Findings
The empirical outcome reveals that economic policy uncertainty negatively influences banking stability. However, when economic policy uncertainty interacts with stringent banking regulations, private monitoring and supervisions, it assists in diversifying the negative impact of economic policy uncertainty on the Indian banking sector stability.
Originality/value
To the best of the author’s knowledge, the study is an original work and provides robust estimates that will assist policymakers in understanding the influence of policy uncertainty on the banking stability. Moreover, the study also helps in understanding the role of supervision and regulation in mitigating the negative consequences of policy uncertainty on the banking stability.
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Ambareen Beebeejaun and Teekshna Maharoo
Financial institutions, including banks, have their responsibilities to contribute towards the preservation of the environment. Green banking is an emerging concept that involves…
Abstract
Purpose
Financial institutions, including banks, have their responsibilities to contribute towards the preservation of the environment. Green banking is an emerging concept that involves eco-friendly initiatives by banks and although Mauritius lacks a comprehensive regulatory framework for green banking, there exists a few green regulations and guidelines. Accordingly, the purpose of this study is to critically analyse the existing legal and regulatory framework on green banking in Mauritius. It is expected that this study will showcase the need for some more robust and proper green banking legal and regulatory framework in Mauritius.
Design/methodology/approach
To achieve the research objective, a black-letter analysis is used to analyse the existing regulatory framework in Mauritius. Moreover, a comparative analysis of the current legal frameworks on green banking in countries like Bangladesh, Indonesia, Pakistan and the UK is carried out.
Findings
This study recommends the establishment of a guideline or legal framework for green banking, a Sustainable Finance Policy, a legal binding framework for issuance of bonds, adoption of a Task Force on Climate-related Financial Disclosure guideline, compulsory environmental reporting and disclosures and a green standard rating.
Originality/value
To the best of the authors’ knowledge, this research is among the first literature on green banking laws, especially in the context of a developing country being Mauritius, and it is anticipated that the findings are of use not only to academics but also to the wider community in general.
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Cryptocurrency arose, and grew in popularity, following the financial crisis of 2008 built upon a promise of decentralizing money and payments. An examination of the history of…
Abstract
Cryptocurrency arose, and grew in popularity, following the financial crisis of 2008 built upon a promise of decentralizing money and payments. An examination of the history of money and banking in the United States demonstrates that stable money benefits from strict controls and commitments by a centralized government through chartering restrictions and a broad safety net, rather than decentralization. In addition, financial crises happen when the government allows money creation to occur outside of official channels. The US central bank is then forced into a policy of supporting a range of money-like assets in order to maintain a grip on monetary policy and some semblance of financial stability.
In addition, this chapter argues that cryptocurrency as a form of shadow money shares many of the problematic attributes of both the privately issued bank notes that created instability during the “free banking” era and the “shadow banking” activities that contributed to the 2008 crisis. In this sense, rather than being a novel and disruptive idea, cryptocurrency replicates many of the systemically destabilizing aspects of privately issued money and money-like instruments.
This chapter proposes that, rather than allowing a new, digital “free banking” era to emerge, there are better alternatives. Specifically, it argues that the Federal Reserve (Fed) should use its tools to improve public payment systems, enact robust utility-like regulations for private digital currencies and limit the likelihood of bubbles using prudential measures.
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Muhammad Iqbal, Lukmanul Hakim and Muhammad Abdul Aziz
This study aims to analyze the factors that influenced the stability of Islamic banks in Asia.
Abstract
Purpose
This study aims to analyze the factors that influenced the stability of Islamic banks in Asia.
Design/methodology/approach
The panel data consisted of 16 Asian countries operating Islamic banks from 2010 to 2019. The data were analyzed through dynamic panel regression using Arellano–Bond generalized method of moments (GMM).
Findings
This study provides novel insights into the factors influencing the stability of Islamic banks in Asia. The findings suggest that past financial stability, liquidity risk, loan risk, inflation, gross domestic product, government effectiveness, rule of law and control of corruption are all significant contributors to Islamic bank stability. Notably, political stability, voice and accountability and regulatory quality did not show a significant association.
Research limitations/implications
The current study’s focus was solely on Islamic bank stability in Asian countries, which leaves room for further exploration. Future research could benefit from expanding the scope to encompass all nations with active Islamic banking institutions. In addition, incorporating a broader range of macroeconomic variables, such as exchange rates, interest rates, profit-sharing equivalents and investment rates, could provide deeper insights into the factors influencing Islamic bank stability across diverse contexts.
Practical implications
This study has significant practical implications for policymakers, bank managers and regulatory authorities seeking to enhance the stability of Islamic banks in Asia. By implementing robust risk management frameworks, adopting prudent regulatory policies, and actively fostering economic growth, policymakers can create an environment conducive to the sustained development and prosperity of Islamic banking institutions. Notably, promoting good governance practices and instituting effective crisis prevention measures can further bolster the resilience of the Islamic banking sector, enabling it to play a more dynamic role in contributing to the overall development and welfare of Asian societies.
Social implications
The findings of this study carry significant social implications, highlighting the need for governments in Asian countries to prioritize public policies that promote good governance and ethical practices within the banking industry. Such policies, coupled with efforts to attract foreign investments and foster a stable and transparent banking sector, have the potential to generate far-reaching positive effects on society. Through economic growth stimulated by a robust Islamic banking sector, Asian countries can create new employment opportunities, improve living standards and ultimately enhance the overall well-being of their citizens.
Originality/value
This study contributes to the ongoing discourse on Islamic banking stability by offering novel insights and expanding the empirical knowledge base in this field. The dual application of robust regression methodologies – namely, GMM dynamic panel data models – presents a unique analytical framework for investigating the complex interplay between diverse variables and Islamic bank stability. This methodological choice fosters deeper understanding of the dynamic relationships at play, advancing our understanding of how specific factors influence the sector's resilience and performance. In addition, the study uses rigorous empirical techniques and engages with the extant literature to provide fresh perspectives and nuanced interpretations of the findings, further solidifying its contribution to the field's originality and richness.
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Zeyneb Hafsa Orhan, Sajjad Zaheer and Fatih Kazancı
This paper aims to achieve two goals: first, to evaluate the existing interest-free monetary policy tools in the major Islamic financial hubs of Malaysia, Pakistan and Bahrain…
Abstract
Purpose
This paper aims to achieve two goals: first, to evaluate the existing interest-free monetary policy tools in the major Islamic financial hubs of Malaysia, Pakistan and Bahrain and; second, to suggest how monetary policy tools in Turkey can be used in other countries.
Design/methodology/approach
This study follows a qualitative research method based on literature review, comparison, evaluation and design.
Findings
The policy rate cannot be used due to Shariah concerns. The reserve requirement depends on qard, and the reserves should be kept separately in the central bank. In terms of ijarah sukuk, Shariah concerns should be taken into account and a new structure, as displayed in Figure 3, should be followed. Government investment certificates can be used as an interest-free monetary policy tool. A genuine mudarabah interbank investments can also be used. Wadiah acceptance with no habitual gift can be used as well, and Tawarruq and central bank notes are not preferable due to Shariah concerns as well. Having said that, a Turkey-based tawarruq platform can be structured for others to use instead of applying to London.
Originality/value
This paper’s unique suggestion is to develop an interbank taqaruz market and a taqaruz method with the central bank. It is also unique for Turkey in the subject.
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Hicham Sbai, Ines Kahloul and Jocelyn Grira
This paper aims to examine the determinants of the dividend distribution policy in a banking setting.
Abstract
Purpose
This paper aims to examine the determinants of the dividend distribution policy in a banking setting.
Design/methodology/approach
Using a sample of 48 Islamic banks and 94 conventional banks from 15 Islamic countries over a period spanning from 2012 to 2019, we document the effect of board gender diversity, executive director profile and governance mechanisms on dividend payment decisions. We also analyze the moderating effect of Islamic banks on the relationship between gender diversity and dividend policy.
Findings
We find new evidence on the role of women directors in determining dividend distribution policy and confirm the risk aversion hypothesis, hence contributing to the ongoing debate on gender diversity literature. Our results show that the moderating role of Islamic banks is effective only for small banks.
Practical implications
Our findings have practical implications for shareholders, managers and financial analysts as they suggest rationalizing dividend distribution strategies.
Originality/value
Our study contributes to the growing body of knowledge on dividend policy, gender diversity and Islamic banks.
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The novel coronavirus (COVID-19) has caused financial stress and limited their lending agility, resulting in more non-performing loans (NPLs) and lower performance during the II…
Abstract
Purpose
The novel coronavirus (COVID-19) has caused financial stress and limited their lending agility, resulting in more non-performing loans (NPLs) and lower performance during the II wave of the coronavirus crisis. Therefore, it is essential to identify the risky factors influencing the financial performance of Indian banks spanning 2018–2022.
Design/methodology/approach
Our sample consists of a balanced panel dataset of 75 scheduled commercial banks from three different ownership groups, including public, private and foreign banks, that were actively engaged in their operations during 2018–2022. Factor identification is performed via a fixed-effects model (FEM) that solves the issue of heterogeneity across different with banks over time. Additionally, to ensure the robustness of our findings, we also identify the risky drivers of the financial performance of Indian banks using an alternative measure, the pooled ordinary least squares (OLS) model.
Findings
Empirical evidence indicates that default risk, solvency risk and COVAR reduce financial performance in India. However, high liquidity, Z-score and the COVID-19 crisis enhance the financial performance of Indian banks. Unsystematic risk and systemic risk factors play an important role in determining the prognosis of COVID-19. The study supports the “bad-management,” “moral hazard” and “tail risk spillover of a single bank to the system” hypotheses. Public sector banks (PSBs) have considerable potential to achieve financial performance while controlling unsystematic risk and exogenous shocks relative to their peer group. Finally, robustness check estimates confirm the coefficients of the main model.
Practical implications
This study contributes to the knowledge in the banking literature by identifying risk factors that may affect financial performance during a crisis nexus and providing information about preventive measures. These insights are valuable to bankers, academics, managers and regulators for policy formulation. The findings of this paper provide important insights by considering all the risk factors that may be responsible for reducing the probability of financial performance in the banking system of an emerging market economy.
Originality/value
The empirical analysis has been done with a fresh perspective to consider unsystematic risk, systemic risk and exogenous risk (COVID-19) with the financial performance of Indian banks. Furthermore, none of the existing banking literature explicitly explores the drivers of the I and II waves of COVID-19 while considering COVID-19 as a dependent variable. Therefore, the aim of the present study is to make efforts in this direction.
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The purpose of this study is to explore the possible impact of banking market structure on the idiosyncratic risk of financially dependent firms in China.
Abstract
Purpose
The purpose of this study is to explore the possible impact of banking market structure on the idiosyncratic risk of financially dependent firms in China.
Design/methodology/approach
The study analyzes firm-level data for China from 1999 to 2018 using a two-step dynamic panel system generalized method of moments (GMM).
Findings
The findings imply that bank competition lowers corporate risk, particularly among firms that are highly dependent on external funding for their financing needs. The findings are consistent with alternative indicators of competition, corporate risk, and financial dependence. The analysis of the transmission mechanism – the channel through which competition affects corporate risk – reveals that bank competition reduces corporate risk by curtailing financing constraints faced by firms.
Research limitations/implications
The competition-enhancing policy should consider the optimum level of bank competition for financial and economic stability. Further research is necessary to define the “desirable” or “optimum” level of bank competition.
Practical implications
In China, where the banking sector is still highly concentrated, the findings of this study call for policies aimed at encouraging healthy competition among banks. Nevertheless, such a policy must also consider the extent of bank competition that is optimal for the economy, particularly for financial and economic stability.
Originality/value
The paper provides the first evidence of the possible linkage between bank competition and corporate risk in China.
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Hassan Akram and Adnan Hushmat
Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for…
Abstract
Purpose
Keeping in view the robust growth of Islamic banking around the globe, this study aims to comparatively analyze the association between liquidity creation and liquidity risk for Islamic banks (IBANs) and conventional banks (CBANs) in Pakistan and Malaysia over a period of 2004–2021. The moderating role of bank loan concentration on the aforementioned relationship is also studied.
Design/methodology/approach
Regression estimation methods such as fixed effect, random effect and generalized least square are deployed for obtaining results. Liquidity creation Burger Bouwman measure (cat fat and noncat fat) and Basel-III liquidity risk measure (liquidity coverage ratio) are also used.
Findings
The results give us insight that liquidity creation is positively and significantly related to liquidity risk in both IBANs and CBANs of Pakistan and Malaysia. This relationship has been moderated negatively (reversed) and significantly by credit concentration showing the importance of risk management and loan portfolio concentration.
Practical implications
It is analyzed that during the process of liquidity creation, IBANs in Pakistan faced more liquidity risk for both on and off-balance sheet transactions in the presence of moderation of loan concentration than IBANs in Malaysia necessitating strategic policy-making for important aspects of liquidity risk management and loan concentration while creating liquidity.
Originality/value
Such studies comparing IBANs and CBANs comparison keeping in view liquidity creation, liquidity risk and loan concentration are either limited or nonexistent.
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Paola Ferretti, Cristina Gonnella and Pierluigi Martino
Drawing insights from institutional theory, this paper aims to examine whether and to what extent banks have reconfigured their management control systems (MCSs) in response to…
Abstract
Purpose
Drawing insights from institutional theory, this paper aims to examine whether and to what extent banks have reconfigured their management control systems (MCSs) in response to growing institutional pressures towards sustainability, understood as environmental, social and governance (ESG) issues.
Design/methodology/approach
The authors conducted an exploratory study at the three largest Italian banking groups to shed light on changes made in MCSs to account for ESG issues. The analysis is based on 12 semi-structured interviews with managers from the sustainability and controls areas, as well as from other relevant operational areas particularly concerned with the integration process of ESG issues. Additionally, secondary data sources were used. The Malmi and Brown (2008) MCS framework, consisting of a package of five types of formal and informal control mechanisms, was used to structure and analyse the empirical data.
Findings
The examined banks widely implemented numerous changes to their MCSs as a response to the heightened sustainability pressures from regulatory bodies and stakeholders. In particular, with the exception of action planning, the results show an extensive integration of ESG issues into the five control mechanisms of Malmi and Brown’s framework, namely, long-term planning, cybernetic, reward/compensation, administrative and cultural controls.
Practical implications
By identifying the approaches banks followed in reconfiguring traditional MCSs, this research sheds light on how adequate MCSs can promote banks’ “sustainable behaviours”. The results can, thus, contribute to defining best practices on how MCSs can be redesigned to support the integration of ESG issues into the banks’ way of doing business.
Originality/value
Overall, the findings support the theoretical assertion that institutional pressures influence the design of banks’ MCSs, and that both formal and informal controls are necessary to ensure a real engagement towards sustainability. More specifically, this study reveals that MCSs, by encompassing both formal and informal controls, are central to enabling banks to appropriately understand, plan and control the transition towards business models fully oriented to the integration of ESG issues. Thereby, this allows banks to effectively respond to the increased stakeholder demands around ESG concerns.
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