Monetary policy and Islamic banking stability: is there a risk-taking channel of monetary policy for Islamic banks
The COVID-19 pandemic has exposed the fragilities in our economies. Central banks across the globe have been called on to protect and maintain global economic and financial system stability. One way they have done so is through unprecedented policy actions, including easing monetary policy across the globe by cutting policy rates to provide ample liquidity to core funding markets and maintain the flow of credit. Indeed, many advanced economies have kept rates to historic lows and half of the central banks in emerging markets and lower income countries have also cut policy rates (Adrian & Natalucci, 2020). This is reminiscent of the exceptionally loose monetary conditions maintained in various countries to stimulate economic activities following the outburst of the Global Financial Crisis (GFC). The GFC brought a surge of interest for the implications of monetary policy on financial risks (Angeloni et al., 2015). Indeed, the prevailing monetary policy during the period 2002-2005, which held interest rates too low for too long, is blamed as one of the significant factors that encouraged excessive risk-taking by financial institutions before the collapse of the American housing market (Chen et al., 2017; Farhi & Tirole, 2012; Rajan, 2010). This link between monetary policy and the perception and pricing of risk by economic agents is labelled as the risk-taking channel of monetary policy. Assessing Islamic banking under prevailing monetary conditions, this thesis investigates the relationship between monetary policy and the risk-taking of Islamic banks. This thesis evaluates the existence of the risk-taking channel for Islamic banking and provides a better understanding of the impact of monetary policy on Islamic banking stability under dual banking systems.
Risk-taking channel , Monetary policy , Islamic banking stability , Islamic banks
Ndiaye, N. D. (2022). Monetary policy and Islamic banking stability: is there a risk-taking channel of monetary policy for Islamic banks (Doctoral dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.org/handle/INCEIF/3684