Islamic Financial Stability during the US Sub-prime Crisis: Using from Data Panel

The recent global financial crisis has induced a series of failures in many conventional banks. It has plunged the world economy into the deepest recession ever since the end of the Second World War (IMF, 2009). In fact, economic growth of around 7% in 2007 in Western Europe fell to 1% in 2009 [1]. In this case, the moral and ethical aspect of finance began to be more emphasized. This financial crisis has increased the attention on Islamic banking [2]. Indeed, Islamic Banks hold over US $700 billion in assets and are growing at over 15% p.a [3]. In the same vision, [4] the Nobel Laureate, and at the same time the President of the Commission of Experts on Reforms of the International Monetary and Financial System, stressed that the world would have been able to avoid such a crisis if they have followed the model of Islamic finance. He added for a well-functioning financial system, it must, at its core, real cash). The aims of this paper are to test the resistance of the Islamic Banks (IBs) in comparison with the Conventional ones (CBs) to the last Sub-primes crisis. The solidity of these banks is appreciated across an empirical study of a sample of IBs and CBs in 8 banking systems. This sample is characterized by an important presence of IBs. By referring to an objective study of the solidity of banks measured by the Z-score, we conclude that Small Islamic Banks (SIBs) tend to be financially stronger than Small Conventional ones (SCBs). Large Conventional Banks (LCBs) tend to be financially stronger than Large Islamic ones (LIBs). Small Islamic Banks (SIBs) have tendency to be more solid than the Large Conventional Banks (LCBs).