The Performance of Islamic Vs. Conventional Banks: Evidence on the Suitability of the Basel Capital Ratios
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This paper examines the effect of various types of bank capital on the profitability and efficiency of conventional and Islamic banks. Our results show that higher quality forms of capital improve the profitability and efficiency for both systems although the results are stronger for conventional banks. The capital effect is more pronounced for large, too-big-to-fail, and highly capitalized banks. The results are robust across various subsamples, alternative profitability and efficiency measures, and different estimation techniques.
KeywordsBank capital Basel capital Profitability Efficiency
JEL ClassificationG21 G28 P43 P47
We thank participants at the 2016 KFUPM Islamic Banking and Finance Research Conference (Riyadh, Saudi Arabia), the editor, and two anonymous reviewers for constructive comments on an earlier version of our paper. All remaining errors are, of course, our own.
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