Risk Governance and Financial Stability: A Comparative Study of Conventional and Islamic Banks in the GCC  

Raouf, Hajar; Ahmed, Habib

Abstract

While the linkage between bank governance and financial stability has been discussed widely, empirical explorations of the strength of this relationship are scant. This paper examines the specific role of risk governance in promoting financial stability in banks. Using hand-collected data, it develops a Risk Governance Index (RGI) to measure the strength of risk governance structures and then examines its impact on four main indicators of financial stability for conventional and Islamic banks in the countries of Gulf Cooperation Council (GCC). The results from the dynamic panel models using two-step GMM method suggest that risk governance significantly contributes to the enhancement of the key financial stability measures. The RGI for Islamic banks is found to be smaller than their conventional counterparts and the regression results indicate that risk governance in Islamic banks has a negative impact on stability indicators. While the business models of Islamic banks have features that can enhance stability, poor risk governance can potentially negate this positive feature.

Citation

Raouf, H., & Ahmed, H. (2022). Risk Governance and Financial Stability: A Comparative Study of Conventional and Islamic Banks in the GCC  . Global Finance Journal, 52, Article 100599. https://doi.org/10.1016/j.gfj.2020.100599

• Journal Article Type: Article
• Acceptance Date: Dec 5, 2020
• Online Publication Date: Dec 13, 2020
• Publication Date: 2022-05
• Deposit Date: Dec 7, 2020
• Publicly Available Date: Jun 13, 2022
• Journal: Global Finance Journal
• Print ISSN: 1044-0283
• Electronic ISSN: 1873-5665
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 52
• Article Number: 100599
• DOI: https://doi.org/10.1016/j.gfj.2020.100599
• Public URL: https://durham-repository.worktribe.com/output/1284177