Islamic Finance, Financial Crisis, and Determinants of Financial Stability: Empirical Evidence throughout the Two Approaches

Abstract

In our paper we will address two major empirical components, using a sample of fifty six banks, divided into four groups belonging to eight countries for a period of ten years (2003-2012) divided into three phases before, during, and after the subprime crisis. First, we would compare the efficiency of Islamic and conventional banks by using data envelopment analysis (DEA). Then we will use the parametric approach (Tobit model) to determine the impact of determinants of financial stability on banking solidity. To sum up, the stability of Islamic banks, especially investment essentially amounts to their asset quality that have a positive and remarkable effect during the crisis, but the weakness of their counterpart returns to the negative leverage and liquidity.