Liquidity risk management: A comparison between participationand conventional banks

There are similarities and differences between conventional banks and participating banks, and how to manage liquidity in each of them is has great importance. Liquidity management is one of the most important challenges banks face. Participation banks may face several problems regarding liquidity today because Participation banks operate according to Islamic law. So sometimes its liquidity can be higher than traditional banks. In this context, the participation banks do not borrow with interest from the central bank or any party when they need money. But traditional banks may be more flexible. In addition, the financial instruments that Participation banks can use are perhaps less than traditional banks because the financial instrument should not be against Islamic law. Since the history of traditional banks' establishment is older than the history of participation banks' establishment, the years of experience of traditional banks are positively reflected on financial instruments and there are various financial instruments.With the help of financial engineering, participation banks can find new financial instruments. However, these financial instruments should not be like traditional instruments. In this study, by making a comparison, how the participation banks and traditional banks manage their liquidity, and how they can solve the lack of their money have been explained.