A Comparaison of Different Banking Systems? Performance During Global Crisis: Conventional vs Islamic Banking

ABSTRACT: Though overall bank performance from 2007 to 2009 was the worst since at least the Great Depression, there is significant variation in the cross-section of banks performance across the world during that period. More specifically this study is going to investigate the performance of islamic and conventional banks during crisis by looking at 20 different banks from 4 diffrent countries. As we know banks that the market favored in 2006 had especially poor returns during the crisis. This study tests the performance of banks that belongs to two different sectors: a) Islamic Banks (IBs) and b) Conventional Banks (CBs). The study concentrates on the pre and post 2007 financial crisis with an aim to test if there are any significant differences in performance between the two sectors. Though canadian banks did not go bankrupt we provide some evidence that capital adequacy ratio has a significant impact on bank profitability in conventional banks. Moreover, we also found out that regulation does not affect islamic banks but management efficiency does. The reason why conventional banks were touch from the recession is because some banks that aim to maximize shareholders wealth before the crisis took some risks that were understood to create shareholder wealth, but were costly ex post because of outcomes that were not expected when the risks were taken. Another important point is that some of the financial crises derive from a human error but not from the regulation or governance. ……………………………………………………………………………………………………………………………………………………………………………………………………………………