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This study aims to address how Islamic banks (IBs) and conventional banks (CBs) manage their liquidity and their speed of adjusting liquidity holdings both in the short- and long term.

This study uses the partial adjustment model (PAM) on a sample of 445 banks from 17 Organisation of Islamic Cooperation countries over the period 2010–2018.

Results reveal that despite IBs’ placement of higher short-term liquidity buffer, they experience lower net stable fund ratio (NSFR) in the long term, relative to CBs. This study’s results also reveal that IBs enjoy higher and lower speed of adjustment (SOA) for NSFR in the long- and short term, respectively. Furthermore, the results suggest that bank-specific and macroeconomic factors weaken the liquidity SOA.

This study sheds light on the importance of the adjusting speed of bank liquidity in a bid to provide regulators with insights for enhancing liquidity holdings and emphasising the regulation of banks’ reaction pace to attain the target buffers.

This study estimates the liquidity adjustment speed of IBs and CBs by providing a comprehensive discussion and empirical evidence across countries. To the best of the authors’ knowledge, this study is the first to use PAM for the assessment of liquidity holdings in IBs and the first to examine SOA of short-term liquidity holdings in the banking sector.