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<p>There is no consensus about the financial resilience and stability of Islamic banks compared to conventional banks, particularly during periods of financial turmoil. This paper uses novel panel cointegration tests (Westerlund in JAE 23:193–233, 2008; Di Iorio et al. in EE 46:1271–1300, 2014; Hadri et al. in EJ 18:363–411, 2015), accounting for cross-sectional dependence and serial correlation. It investigates the cointegrating equation of banking stability through an illustrative application. Westerlund and Hadri et al. tests confirm that some banks are cointegrated, but do not specify which units drive it. The bootstrap panel cointegration test of Di Iorio et al. reveals that the cointegrating relationship holds only in domestic-oriented banks, rather than those oriented-abroad banks. Furthermore, the findings show that the bootstrap sequential test predominates, revealing specific sub-cointegration rather than entire panel cointegration. Within a mixed banking system, the stability of banks is not contingent on whether banks adhere to Islamic or conventional financing models, but rather on their interdependence.</p>

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Panel cointegration tests in finite sample analyzing banking stability

  • 期刊论文

  • 发表日期：

    2025年3月24日

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  • Hassan Belkacem Ghassan

摘要

There is no consensus about the financial resilience and stability of Islamic banks compared to conventional banks, particularly during periods of financial turmoil. This paper uses novel panel cointegration tests (Westerlund in JAE 23:193–233, 2008; Di Iorio et al. in EE 46:1271–1300, 2014; Hadri et al. in EJ 18:363–411, 2015), accounting for cross-sectional dependence and serial correlation. It investigates the cointegrating equation of banking stability through an illustrative application. Westerlund and Hadri et al. tests confirm that some banks are cointegrated, but do not specify which units drive it. The bootstrap panel cointegration test of Di Iorio et al. reveals that the cointegrating relationship holds only in domestic-oriented banks, rather than those oriented-abroad banks. Furthermore, the findings show that the bootstrap sequential test predominates, revealing specific sub-cointegration rather than entire panel cointegration. Within a mixed banking system, the stability of banks is not contingent on whether banks adhere to Islamic or conventional financing models, but rather on their interdependence.