The paper provides robust evidence that compliance with Basel Core Principles (BCPs) has a
strong positive effect on the Z-score of conventional banks, albeit less pronounced on the Zscore
of Islamic banks. Using a sample of banks operating in 19 developing countries, the results
appear to be driven by capital ratios, a component of Z-score for the two types of banks. Even
though smaller on Islamic banks, individual chapters of BCPs also suggest a positive effect on
the stability of conventional banks. The findings support the effective role of BCP standards in
improving bank stability, whose important implications led to the Islamic Financial Services
Board (IFSB) publication of new recommendations in 2015 to bring BCP standards in line with
the Core Principles for Islamic Finance Regulation (CPIFRs) standards. Our findings suggest
that because Islamic banks are benchmarked closely to BCPs, the implementation of CPFIRs
should also positively affect their stability.
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