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" Essays on banking and monetary policy in the presence of Islamic banks "
Husman, Jardine
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Latin Dissertation
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| Record Number
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808558
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TLets644946
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| Main Entry
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Husman, Jardine
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| Title & Author
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Essays on banking and monetary policy in the presence of Islamic banks\ Husman, Jardine
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| College
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University of Warwick
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| Date
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2015
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| student score
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2015
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| Degree
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Thesis (Ph.D.)
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| Abstract
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This thesis consists of two chapters and aims to investigate the presence Islamic banks in Indonesia in the context of stability and monetary policy transmission mechanism. The first chapter compares bank stability, in particular profit stability, in Islamic versus conventional banks amid business cycle fluctuations. The unique characteristics of Islamic finance principles hypothetically involve different financial structures and provide stability for banks that comply with them. Using monthly bank-level data with comparable banks across the two types, I investigate the dynamic responses of individual banks to business cycle fluctuations. The dynamic estimation results show that the profits of Islamic banks’ are more stable than those of conventional banks in the short run, yet generally indicate no significant difference in the long run. However, the inclusion of the loan-to-asset ratio removes the remaining short-run differences. I check for robustness by estimating the static relationship between individual bank’s profits and the average profitability of the total banking industry, and the outcomes support the no-difference results. The second chapter compares the monetary transmission through Islamic and conventional banks by investigating how a particular bank asset portfolio, which corresponds to their type from being conventional or Islamic, determines the equilibrium rate of return on loans and on deposits which in turn affects their loans and net-borrowing from the central bank. Certain application of Islamic finance principles leads to a marked difference in Islamic banks’ assets portfolio which corresponds to a consistently higher loan-to-asset ratio in comparison to conventional banks. I test a set of predictions conveyed by the theoretical model using a panel of individual bank data. The results turn to be highly dependent on how well the two types of banks are segregated from each other, in which slack segregation may dissipate the potential differences. In particular while initially the results show no significant difference in responses of the two types of banks to the central bank policy rate, excluding Islamic windows from the sample allow the potentially difference to be more apparent and significant. Overall, the possibility that both types of banks may after the same pool of consumers exposes them to compete with banks from the other type, generating arbitrage opportunities that drive prices toward equality across types and impede the potential difference across banks.
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HG Finance
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University of Warwick
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