Kenneth Baldwin
A Structural Model of "Alpha" for the Capital Adequacy Ratios of Islamic Banks
Baldwin, Kenneth; AlHalboni, Maryam; Helmi, Mohamad Husam
Authors
Maryam AlHalboni
Mohamad Husam Helmi
Abstract
The denominator of the capital adequacy ratio (CAR) for Islamic banks includes an adjustment factor, alpha, arising from the subsidisation of investment account holders’ returns using bank equity. The methodology established by the risk management standard-setting body for Islamic banks, the IFSB, estimates an alpha for each country using panel-data and normally distributed asset returns for its credit institutions. Consequently, the IFSB methodology precludes bank-specific alphas linked to the actual risk profile of underlying assets. There is also no discernible mapping between alpha and a bank’s own propensity to subsidise cash returns. This paper instead develops a new theoretical model for bank-specific alpha that is estimated for 43 Islamic banks in 11 countries. Our alpha values broadly correspond with those of the IFSB. However, a form of regulatory arbitrage is shown to exist which favors banks with relatively high alphas. This finding also has policy implications for bank efficiency and systemic risk.
Citation
Baldwin, K., AlHalboni, M., & Helmi, M. H. (2019). A Structural Model of "Alpha" for the Capital Adequacy Ratios of Islamic Banks. Journal of International Financial Markets, Institutions and Money, 60, 267-283. https://doi.org/10.1016/j.intfin.2018.12.015
Journal Article Type | Article |
---|---|
Acceptance Date | Dec 26, 2018 |
Online Publication Date | Dec 28, 2018 |
Publication Date | May 31, 2019 |
Deposit Date | Apr 12, 2019 |
Publicly Available Date | Dec 28, 2019 |
Journal | Journal of International Financial Markets, Institutions and Money |
Print ISSN | 1042-4431 |
Electronic ISSN | 1873-0612 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 60 |
Pages | 267-283 |
DOI | https://doi.org/10.1016/j.intfin.2018.12.015 |
Public URL | https://durham-repository.worktribe.com/output/1303928 |
Files
Accepted Journal Article
(872 Kb)
PDF
Publisher Licence URL
http://creativecommons.org/licenses/by-nc-nd/4.0/
Copyright Statement
© 2019 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
You might also like
Oil prices and sectoral stock returns in the BRICS-T countries: A time-varying approach
(2022)
Journal Article
The bank lending channel in the Malaysian Islamic and conventional banking system
(2019)
Journal Article
Downloadable Citations
About Durham Research Online (DRO)
Administrator e-mail: dro.admin@durham.ac.uk
This application uses the following open-source libraries:
SheetJS Community Edition
Apache License Version 2.0 (http://www.apache.org/licenses/)
PDF.js
Apache License Version 2.0 (http://www.apache.org/licenses/)
Font Awesome
SIL OFL 1.1 (http://scripts.sil.org/OFL)
MIT License (http://opensource.org/licenses/mit-license.html)
CC BY 3.0 ( http://creativecommons.org/licenses/by/3.0/)
Powered by Worktribe © 2025
Advanced Search