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The purpose of this paper is to examine the impact of bank regulation and supervision on bank development, efficiency and fragility over the period of 1999-2011.

The authors’ approach is based on a multivariate difference-in-difference model which controls for potential endogeneity of the explanatory variables and unobservable country-specific effect. The paper investigates the changes of bank outcomes and a country’s regulation and supervisory practices, in terms of capital regulation, supervisory power, private monitoring, entry into banking requirements, overall restrictions on bank activities and government ownership of banks in a sample of 53 countries with a total of 482 observations.

Empirical results indicate that greater capital regulatory requirements reduce bank fragility, as measured by lower levels of non-performing loans but reduce bank efficiency, as measured by higher levels of net interest margin; supervisory practices that strengthen private sector monitoring of banks improve bank development, as measured by bank private credit as a share of gross domestic product; lower levels of non-performing loans are associated with greater enter-into-banking requirements and less restrictiveness on bank activities; and greater government ownership of banks is associated with both higher levels of net interest margin and higher levels of non-performing loans. Overall, the findings support Basel II’s first and third pillars: capital requirements and private monitoring.

This cross-country analysis provides evidence on which specific regulatory and supervisory practices work best in light of what was learned from the recent financial crisis.

The study explores the existing Shariah audit practice of Islamic banks (IBs) in Bangladesh aiming at providing suggestions for improvements on the detected shortfalls in the relevant areas.

This research applied a qualitative method, and data were collected through conducting semi-structured interviews in Bangladesh. A total of 17 interviews were conducted for accomplishing the research objectives.

The study finds that there is no comprehensive Shariah audit manual in the current operation for IBs in Bangladesh, and as such, the requirements of their Shariah compliance remain a big question. Although the Shariah audit is conducted within IBs, and the Shariah audit officers or Shariah officers inspect necessary documents while conducting the Shariah audit, they only cover 10–20% of total investments and transactions. Based on the findings of this study, it is recommended that the Shariah auditing tasks should broadly cover at least 80% of the investment portfolios, documents and financial contracts and activities.

The findings of this research are expected to significantly contribute to the regulatory authorities concerned in Bangladesh and beyond, which include the suggestions that IBs can adopt to strengthen their Shariah governance system. The study also pinpoints that in the current system, Shariah auditors' roles are somehow limited in examining and checking the investment sides with a minimal portion (10–20%), for which they are unable to perform their responsibilities in a befitting manner to provide assurance services and overall Shariah compliance of IBs activities.

This study explores the current Shariah audit systems and provides recommendations to improve the existing systems which will be beneficial for Islamic banks of Bangladesh.

To the researchers' knowledge, perhaps this is the first research of its kind which seeks to explore the current Shariah audit practice in Bangladesh qualitatively, and it provides some practical suggestions for making the necessary developments of the current audit process of IBs. In addition, there are no empirical studies in the entire Emerald insight publishers and Scopus database regarding Shariah audit practices. The study contributes to the agency, stakeholder and legitimacy theories by exploring the Shariah audit of IBs.

The purpose of this paper is to examine the effect of bank capital on liquidity creation. Especially, the authors test two competing hypotheses: the “risk absorption” hypothesis and the “financial fragility-crowding out” hypothesis that describe such association in the context of UK and French banking industry.

The authors use data collected from Bankscope for commercial banks pertaining to the aforementioned countries. The sample period ranges from 2000 to 2014. Liquidity creation was measured using a novel approach proposed by Berger and Bouwman (2007). This study uses the quantile regression (QR) and the instrumental variables QR, along with classical ordinary least squares (OLS) and panel regression, to deal with the mixed results reported by previous papers.

Using OLS and panel regression, the authors first find that bank capital negatively affects liquidity creation which supports risk absorption hypothesis. Second, the result from QR confirms the negative association between the aforementioned variables and shows that the effect is homogenous across quantiles of liquidity creation distribution. The result remains unchanged when using the QR with instrumental variables to address the potential problem of endogeneity.

This paper sheds more lights on the relationship between bank capital and liquidity creation by using a novel estimation approach based on the QR methodology.

This paper aims to investigate the impact of banking market competition on banks’ profitability and banks’ risk using a sample of six countries from the Middle East from 2006 to 2017.

This paper uses the system generalized method of moments estimator to tackle potential omitted variable bias, endogeneity and simultaneity issues.

After controlling for bank market and country-specific characteristics, this study reports strong and robust evidence that competition in the banking market is conducive to lower financial performance. This research further finds that intense banking competition leads to lower profitability and increased risk regardless of bank type. As the relationship is not different for Islamic banks, one can argue that activities of Islamic banks are based on the basic traditional banking operations and products, and banks need to diversify their business activities to reduce failure risk and preserve the banking sector’s stability.

This paper tries to bridge the gap by studying the impact of competition on bank performance in high-income dual banking Gulf Cooperation Council (GCC) economies. Earlier studies have either covered all the dual banking economies or the Middle East and North African region. The authors suggest that the GCC banking market is required to be studied separately because of its idiosyncrasies. Second, unlike earlier studies, the authors have not only examined the impact of competition on bank return but also on bank risk.

The purpose of this paper is to explore the question “Why is Shariah Governance Framework (SGF) important for Islamic banks?”

A semi-structured face-to-face personal interview is used to accomplish the research objectives. This study has collected data from the concerned bodies related to Shariah Governance (SG) from the central bank and Islamic banks of Bangladesh.

This study states SG as a process of confirming Shariah compliance in the overall functions of the Islamic banks, while Shariah denotes some rules, regulations, guidelines, objectives and directions to enhance accurate functions and activities, which are solely based on Shariah principles. SGF is important for Islamic banks to implement Shariah principles, confirm Shariah compliance and monitor the functions of the banks. Besides, it is needed for a well, efficient, effective, profitable business and higher performance and, finally, to eliminate the confusion among the management, executives, conventional bankers and banks.

This study significantly contributes to the national and global regulatory bodies by providing evidence that why do Islamic banks and financial institutions require a sound SGF. It is recommended that there should be a sound and robust SGF to protect and fulfill the interest, expectations and demands of different stakeholders, which can easily draw their attention, intention and interest.

This is the first research that extends the literature of Islamic banking and SG by highlighting the importance of SGF. This study claims that to be a complete Islamic bank as well as protecting the unique identity from the general banks and corporate governance system, SG manual is required.

The purpose of this paper is to investigate the influence of board of directors (BODs) and management in the decision-making of Shariah supervisory board (SSB) and implementation of their decisions.

The paper implements qualitative case research to explore the influences of BODs and management in the context of Bangladesh. To accomplish the research objective, we collected data from the 17 respondents from the regulators, Shariah supervisory boards, Shariah department executives and Shariah experts from the central bank and Islamic banks of Bangladesh.

This study found that management of Islamic banks indirectly influences the practices and functions of SSB, their decision-making and other activities. However, from either ethical or moral ground, management cannot influence SSB; management does not have legitimate power to control over their activities. Sometimes the BODs and management use the SSB and Shariah executives as a showcase and rubber stamp to accomplish their goals and to maximize profit in either partially or fully. Management assumes that Shariah officers are accomplishing and minimizing their income and hindering business functions without any contributions.

The study significantly contributed to the national and global regulatory bodies by providing suggestions that regulatory bodies should be more concerned with the independence of SSB and Shariah executive officers. Besides, the BODs and management should be careful in handling Shariah issues as they were committed to do Islamic banking as per Shariah law. The study has theoretical contributions regarding the stakeholder and legitimacy theories.

This is the first research which extends the literature of the Islamic banking and Shariah governance mechanisms in perspective of Bangladesh concerning the influence of BODs and management in the decision-making of SSB and implementation of their decisions.

This paper examines the effect of economic policy uncertainty (EPU) on credit risk, lending decisions and banking performance of Tunisian listed banks over the period 1999–2019.

To identify the relationship between EPU, credit risk, lending decisions and banking performance, we have proceeded with a fixed effects panel regression model over the period 1999–2019.

Our empirical analysis showed a significant positive effect of EPU on credit risk and a significant negative effect on loan size and performance. We have also found that state-owned banks were the most affected by increasing EPU. Their credit risk has increased and their returns have decreased. While highly leveraged private banks have recorded a sharp decline in their results.

Facing increasing credit risks, generated by EPU, Tunisian banks are allowed to revise their lending decisions to ensure consequently their sustainability and performance.

Tunisian resident banks should set up a monitoring system and an early-warning system of credit risk in order to guarantee both, their performance and the sustainability of the economy's financing.

A good banking governance and a stable economic and political environment are the key factors that improve the allocation of credit, credit risk diversification and the creation of added value for the different activity sectors.

On the theoretical as well as on the empirical level, the analysis of the Tunisia EPU on credit risk, bank lending strategy and banking performance was not handled previously in the literature. It was noted that state banks are more influenced by the increase of EPU. Their credit risk has increased and their returns have declined. However, private banks with a high leverage effect have recorded a net decrease in their results. Since the 2011 revolution, invisibility and EPU have largely influenced the bank lending decisions and subsequently banking performance.

This study aims to propose a risk management framework for Islamic banks to address specific risks that are unique to Islamic bank settings.

A unique methodology has been developed first by exploring the dynamics and behaviors of various risks unique to Islamic banks. Second, it integrates them through a series of diagrams that show how they behave, integrate and impact risk, returns and portfolios.

This study proposes a unique risk-return relationship framework encompassing specific risks faced by Islamic banks under the ambit of portfolio theory showing how Islamic banks establish a steeper risk-return path under Shariah compliance. By doing so, this study identifies a unique “Islamic risk-return” nexus in Islamic settings as an explanation for the concern of contemporary researchers that Islamic banks are more risky than conventional banks.

The originality of this study is that it extends the scope of risk management in Islamic banks from individual contract-based to an integrated whole, identifying a unique transmission path of how risks affect portfolio diversification in Islamic banks.

This paper provides a quantitative assessment of the “asset ratio” rule defined in Turkey as part of measures taken to stimulate the economy amid the Covid-19 pandemic. The main objective of the new rule was to boost credit growth in the economy and provide lending for credit-constrained households and firms that are in need. A secondary aim was to shift the denomination structure of the deposits toward domestic currency. Hence, the paper focus particularly on how the policy affected the growth rate of loans and the share of domestic deposits relative to foreign ones among the commercial banks. The policy was also heavily criticized due to the possibility that it will subjugate the banking system to excessive risk. The paper explore this possible impact by measuring how much the policy affected the default risk allowances in the banking system.

The new policy required banks with deposits above a threshold level, i.e. large banks, to maintain a certain asset ratio. Banks with deposits below the threshold, i.e. small banks, were held exempt from it. The paper implement a difference-in difference methodology to assess the quantitative impacts of the asset ratio policy by taking large banks as the treatment group, and small banks as the control group.

Difference-in-difference estimation results suggest that the asset ratio policy resulted in a 9.6% rise in loans and an 8.4% rise in government securities. Deposits also increased, with no significant change in their composition. The policy initially generated a 7% increase in the credit risk allowances of banks in the treatment group, which vanished in the following periods. Based on all these, the paper argue that the policy was successful in providing liquidity to the economy without jeopardizing the financial stability.

The findings of this study show that asset ratio policy is effective in increasing credit growth in countries with limited policy space such as Turkey. While saying this, the importance of the robust and prudent structure of the banking system in the economy should be underlined. Otherwise, the policy may have an unintended consequence of raising systemic risk. The policy suggestions also apply to advanced countries where the monetary policy has reached a natural limit due to the zero lower bound (ZLB). The ZLB problem encouraged these countries to use quantitative easing schemes in the aftermath of the Covid-19 crisis, just like the global financial crisis. However, it may take a long time to undo the effects of this policy on the balance sheets of central banks. In such cases, asset ratio policy can also be considered as an alternative tool for advanced economies notwithstanding the fact that the banking system should be prudent, well-capitalized and the country should have enough fiscal space. The main objective of the asset ratio policy was to help SMEs that were in urgent need of liquidity at the beginning of the crisis. The bank balance sheet data used in this paper does not contain information about the borrowers of the loans extended during the implementation of the policy. Analysis of this dimension using matched bank-firm level data will better demonstrate the success of the policy in achieving this goal. The paper address this as the main limitation of the paper and leave that analysis for future research.

This paper provides an important contribution to the literature by assessing a new unique policy whose objective is to stimulate loans and mitigate the impact of the Covid-19 crisis on the economy. The policy in question is predicted to have effects on the asset and liability structure and risk exposure of the banking system in Turkey. The quantitative analysis in this study estimates these impacts and discusses the effectiveness of the new policy in providing a relief for firms and households in need. Whether or not the policy caused a disruption in the sound structure of the banking system in Turkey is another question addressed in the paper.

In this chapter we study the intra-group transactions between the parent bank and its foreign subsidiaries in European Union (EU) countries during the crisis. We use hand-collected data from annual statements on related party transaction and find that they may create a serious problem for the stability of the foreign banks’ subsidiaries. Moreover, as some of those subsidiary banks were large by assets in some of the member states the related party transactions with the parent bank created a serious threat to the host countries’ financial system stability. We attribute this transaction to the weak governance in foreign subsidiaries. We suggest improvements in governance as well as greater disclosure of related party transactions in bank holding companies in Europe.