Impact of Global Regulations on the Risk Of Islamic and Conventional Banks.

Abstract

Basel III was introduced after the recent GFC to strengthen the regulatory system for the banking sector. Basel III was initiated after the recent GFC to strengthen the regulatory regime for the banking sector. As liquidity problems faced by banks were a key characteristic of the crisis, Basel III has added liquidity requirement ratios in addition to reinforcing the capital requirements. Conformity with these international rules has become even more important in today’s recessive economy and many Islamic banks although consist of a small sector & the worldwide banking industry are already beginning to integrate these guidelines into their operations. This paper examines the implications of the new Basel III liquidity requirement ratios for Islamic banks. This paper also examines the impact of global regulations on the risk of both Islamic and conventional banks. Given the short history of its development and the restrictions imposed by Shari’ah principles, the Islamic banking sector faces several restrictions that will constrain its adoption of the Basel III requirements. In this study, financial stability will be calculated using Zscores. The data sample used in this study include five Islamic banks and ten conventional banks of Pakistan.