Comparative study between conventional and Islamic banks’ liquidity after the Subprime Crisis

The consequences of the Subprime Crisis have shown a serious deficiency in the financing structures of conventional and Islamic banks resulting from frequent resilience. Specifically, the paper argues that large banks that relied primarily on wholesale external funding, such as resources from other banks, money market funds and treasuries of multi-national companies, have been hit hard by the effects of the Crisis. Conversely, banks that relied mainly on deposits from companies or individuals have weathered the Crisis very well because of the interdependent relationships in the banking and foreign exchange markets. Although the two types have suffered the effects of the Crisis, previous comparative studies between the liquidities of conventional and Islamic banks have produced inconclusive results. This brings us to compare their liquidities during a financial stable period (2010–2018) and to provide a more accurate answer using a new original methodology. Based on two populations encompassing all the classical and Islamic banks in the concerned countries, we chose two samples. After a conditional selection of the observations and a filtering process, the sizes were reduced to the value of 63 banks in each sample. Therefore, we have found that Islamic banks are more liquid than their conventional counterparts.