TITLE:
Systemic Risk of Conventional and Islamic Banks: Comparison with Graphical Network Models
AUTHORS:
Shatha Qamhieh Hashem, Paolo Giudici
KEYWORDS:
Financial Stability, Centrality Measures, Graphical Gaussian Models, Islamic Banks, Conventional Banks, Systemic Risk
JOURNAL NAME:
Applied Mathematics,
Vol.7 No.17,
November
14,
2016
ABSTRACT: The main aim of this
paper is to compare the stability, in terms of systemic risk, of conventional
and Islamic banking systems. To this aim, we propose correlation network models
for stock market returns based on graphical Gaussian distributions, which allows
us to capture the contagion effects that move along countries. We also consider
Bayesian graphical models, to account for model uncertainty in the measurement
of financial systems interconnectedness. Our proposed model is applied to the
Middle East and North Africa (MENA) region banking sector, characterized by the
presence of both conventional and Islamic banks, for the period from 2007 to
the beginning of 2014. Our empirical findings show that there are differences
in the systemic risk and stability of the two banking systems during crisis
times. In addition, the differences are subject to country specific effects
that are amplified during crisis period.