Responsiveness of Banks’ Stability Towards Peak and Trough Phases of Business Cycle: A Comparative Analysis of Islamic Banks and Conventional Banks

Abstract

This study investigates the effect of business cycle stages on the financial stability of conventional banks and Islamic banks for the period 1995 to 2020. The data is taken from a sample of Islamic banks (62) and conventional banks (218) of twenty countries having dual banking systems. The data was analyzed using System GMM. The pertinent findings established that Islamic banks outclass conventional banks and hence have greater financial stability. The study reveals that Islamic banks exhibit better stability in comparison with the conventional banks in terms of their real-asset investments, improved real economy collaborations, real assets investment, better non-aggressive advancement, and restricted speculative actions.