Comparative and demonstrative study between the liquidity of Islamic and conventional banks in a financial stability period: Which type of banks is the most liquid?

Abstract

Due to the failure of several conventional banks and the closure of some Islamic banks around the world, both types are exposed to the risk of liquidation and bankruptcy. Theoretically, knowledge production has until recently been the monopoly of academic research (Vinck, 2000). The choice of the most liquid type of bank and which maximizes the liquidity of its customers is a problem to be solved. Since most of the previous comparative studies that have dealt with banking liquidity are unconfirmed, our research interest is to overcome these constraints to provide a more optimistic answer. Two samples were removed from two reference populations over the period (2010-2018). Samples were selected from 16 countries. Basic populations consist of all existing conventional and Islamic banks in the selected countries. The choice of banks is limited to countries whose banking systems incorporate both types. Subsequently, the list for each banks' type was reduced based on qualitative and quantitative filtering criteria. Therefore, each conventional bank has its closest Islamic equivalence in terms of capital and size taken from the same country. This restriction reduced the sample size to 63 large banks each. All selected banks were listed in different stock exchanges around the world. Empirical results showed that Islamic banks are more liquid than conventional banks during a financial stable period.