The Role of Regulation in Banking: Liquidity Risk Perspective

Document Type: Research Paper


1 Faculty of Economics and Management, Universiti Kebangsaan Malaysia, 43600, Bangi, Selangor, Malaysia

2 Faculty of Economics and Management & Institute of Islam Hadhari (HADHARI), UKM, 43600, Bangi, Selangor, Malaysia


The liquidity crisis in 2008 sparked interest in the role of regulation that could promote resilience and stability in the banking system. While the Public Interest theory suggests that legal policies could discipline banking activities, the Private Interest theory predicts otherwise, which impairs banking performance. The conflicting theories warrant comprehensive research, especially for Islamic banks, as they emerge to gain their systemic importance. Given this, this study examines the role of banking regulation on liquidity risk management of banks in OIC countries from 2000 to 2014. The findings suggest that restrictions on banking activities and capital requirement pose a significant impact on liquidity risk. However, the marginal effect of regulatory capital is more pronounced in conventional banks compared to Islamic banks.


Main Subjects

Article Title [فارسی]

نقش تنظیم گری در بانکداری از منظر ریسک نقدینگی

Authors [فارسی]

  • سیاجارول امنا مهد امین 1
  • آیسیه عبدالرحمن 2
Abstract [فارسی]

بحران نقدینگی سال 2008 موجب بذل توجه به نقش تنظیم گری در ایجاد مقاومت و ثبات در نظام بانکی شد. در حالی که نظریه منافع عمومی عنوان می دارد که سیاست های قانونی می توانند فعالیت های بانکی را تنظیم کند، نظریه منافع خصوصیبیان می کند که این سیاست ها می تواند عملکرد بانکی را دچار اختلال کند. بروز این نظریات مخالف و اهمیت روزافزون آنها در نظام بانکی نیاز به انجام پژوهشی جامع به خصوص در بانکهای اسلامی را نمایان می سازد. بر این مبنا، پژوهش حاضر نقش تنظیم گری بانکی در مدیریت ریسک نقدینگی در بانک های کشورهای عضو سازمان کنفرانس اسلامی از سال2000 تا 2014 را بررسی می کند. یافته های پژوهش نشان می دهد که تحدید فعالیت های بانکی و الزامات سرمایه ای اثر مهمی روی ریسک نقدینگی دارد. با این حال، اثرات جانبی سرمایه نظارتی در بانکهای غیراسلامی از بانک های اسلامی چشمگیرتر است.   

Keywords [فارسی]

  • تنظیم گری بانکی
  • استانداردهای نظارت
  • ریسک نقدینگی
  • بانکهای اسلامی
  • روش گشتاورهای تعمیم یافته
Abdul-Rahman, A., Said, N. L. H. M., & Sulaiman, A. A. (2017). Financing structure and liquidity risk: Lesson from Malaysian experience. Journal of Central Banking Theory and Practice, 6(2), 125-148.
Alam, N. (2013). Impact of banking regulation on risk and efficiency in Islamic banking. Journal of Financial Reporting and Accounting, 11(1), 29-50.
Alam, N., Zainuddin, S. S. B., & Rizvi, S. A. R. (2018). Ramifications of varying banking regulations on performance of Islamic banks. Borsa Istanbul Review, 19(1), 49-64.
Ali, S. S. (2013). State of liquidity management in Islamic financial institutions. Islamic Economic Studies, 21([H1] 1), 1-36.
Altunbas, Y., Binici, M., & Gambacorta, L. (2018). Macroprudential policy and bank risk. Journal of International Money and Finance, 81[H2] (March), 203-220.
Amin, S. I. M, Shamser, M., & Eskandar, M. S. (2017). Does cost efficiency affect liquidity risk in banking? Evidence from selected OIC countries. Jurnal Ekonomi Malaysia, 51(2), 47-62.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58[H3] (2), 277–297.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1)[H4] , 29–51.
Barth, J., Caprio, G., & Levine, R. (2004). Bank regulation and supervision: What works best? Journal of Financial intermediation, 13(May)[H5] , 205-248.
Barth, J. R., Lin, C., Ma, Y., Seade, J., & Song, F. M. (2013). Do bank regulation, supervision and monitoring enhance or impede bank efficiency? Journal of Banking & Finance37(8), 2879-2892.
Basel Committee on Banking Supervision (BCBS). (2008). Liquidity risk: Management and supervisory challenges, Basel Committee on Banking Supervision.
BCBS. (2013). Basel III: The Liquidity coverage ratio and liquidity risk monitoring tools, Basel Committee on Banking Supervision.
Beck, T., Demirgüç-Kunt, A., & Levine, R. (2000). A new database on financial development and structure. World Bank Economic Review, 14(3)[H6] , 597-605
Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: Business model, efficiency and stability. Journal of Banking & Finance, 37(2)[H7] , 433–447.
Berger, A. N., Bouwman, C. H., Kick, T., & Schaeck, K. (2016). Bank liquidity creation following regulatory interventions and capital support. Journal of Financial Intermediation, 26[H8] (Apr), 115-141.
Berger, A. N., & Bouwman, C. H. (2017). Bank liquidity creation, monetary policy, and financial crises. Journal of Financial Stability, 30[H9] (June), 139-155.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87[H10] (1), 115–143.
Bonfim, D., & Kim, M. (2012). Liquidity risk in banking: Is there herding? European Banking Center Discussion Paper, 24[H11] (July), 1-31.
Boyd, J., Graham, S., & Hewitt, R. (1993). Bank holding company mergers with nonbankfinancial firms: Effects on the risk of failure. Journal of Banking and Finance, 17(1)[H12] , 43–63.
Casey, P. (2015). Comparative study on the implementation of selected IFSB standards. IFSB Working Paper Series, WP-04/10/2015. Available at
Chen, T. H., Chou, H. H., Chang, Y., & Fang, H. (2015). The effect of excess lending on bank liquidity: Evidence from China. International Review of Economics & Finance, 36[H13] (Mar), 54–68.
Demirgüç-Kunt, A., & Huizinga, H. (2010). Bank activity and funding strategies: The impact on risk and returns. Journal of Financial economics, 98(3), 626-650.
Diamond, D. W., & Rajan, R. G. (2005). Liquidity shortages and banking crises. Journal of Finance, 60(2), 615-647.
Fernandez, A., & González, F. (2005). How accounting and auditing systems can counteract risk-shifting of safety nets in banking: Some international evidence. Journal of Financial Stability, 1[H14] (4), 466–500
Ghenimi, A., & Omri, M. A. B. (2015). Liquidity risk management: A comparative study between Islamic and conventional banks. Arabian Journal of Business and Management Review, 3(6), 25-30. 
Hasan, M., & Dridi, J. (2011). The effects of the global crisis on Islamic and conventional banks: A comparative study. Journal of International Commerce, Economics and Policy2(2), 163-200.
Holtz-Eakin, D., Newey, W., & Rosen, H. (1988). Estimating vector autoregressions with panel data. Econometrica, 56[H15] (Nov), 1371–1395.
Horváth, R., Seidler, J., & Weill, L. (2014). Bank capital and liquidity creation: Granger-causality evidence. Journal of Financial Services Research, 45(3), 341-361.
Horváth, R., Seidler, J., & Weill, L. (2016). How bank competition influences liquidity creation. Economic Modelling, 52[H16] (Jan), 155-161.
IFSB. (2008). Technical Note on Issues Strengthening Liquidity Management of IIFS: The Development of Islamic Money Market Islamic Financial Services Board.
IFSB. (2012). Guiding principles on liquidity risk management for institutions offering Islamic financial services (excluding Islamic insurance (Takaful) institutions and Islamic collective investment schemes). Islamic Financial Services Board.
IFSB. (2013). Revised Capital Adequacy Standard for IIFS excluding Islamic insurance (takaful) institutions and Islamic collective investment schemes). Islamic Financial Services Board.
Khalib, M., Abdul-Rahman, A., & Janor, H. (2016). Impak kecekapan kos terhadap risiko kecairan dalam institusi perbankan di Malaysia. Jurnal Pengurusan, 47[H17] (Sept), 67-79.
Klomp, J., & De Haan, J. (2012). Banking risk and regulation: Does one size fit all? Journal of Banking and Finance, 36[H18] (12), 3197–3212.
Klomp, J., & De Haan, J. (2014). Bank regulation, the quality of institutions, and banking risk in emerging and developing countries: An empirical analysis. Emerging Markets Finance and Trade50(6), 19-40.
Laeven, L., & Majnoni, G. (2003). Loan loss provisioning and economic slowdown: Too much, too late? Journal of Financial Intermediation, 12(2)[H19] , 178–197.
Mahmood, H., Gan, C., & Nguyen, C. (2017). Determinants of maturity transformation risk in Islamic banks: A perspective of Basel III liquidity regulations. Journal of Islamic Finance176(Special Issue), 142-162.
Ramzan, M., & Zafar, M. I. (2014). Liquidity risk management in Islamic banks: A study of Islamic banks of Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 5(12), 199-215.
Roman, A., & Sargu, A.C. (2015). The impact of bank-specific factors on the commercial banks liquidity: Empirical evidence from CEE countries. Procedia Economics and Finance, 20(15), 571–579.
Sassi, H. (2013). The impact of bank regulations and institutions on efficiency in selected MENA banks. International Journal of Economics and Finance, 5(8), 84-100.
Tirole, J. (2011). Illiquidity and all its friends. Journal of Economic Literature, 49(2), 287–325.
Vodova, P. (2011). Liquidity of Czech commercial banks and its determinants. International Journal of Mathematical Models and Methods in Applied Sciences, 5(6), 1060–1067.
 [H1]This number is the serial one and is too large. Please provide the issue number of the this volume (e.g. 4)
Answer: has changes to 1
 [H2]Issue number?
Answer: No issue number, but month instead
Answer: 2
Answer: 1
Answer: No issue no, but month instead
Answer: 3
Answer: 2
Answer: No issue, but month instead
 [H9]Issue? No Issue, but month instead
Answer: 1
Answer: no issue, but month instead
Answer: 1
Answer: No issue, but month instead
Answer: 4
Answer: no issue, but month instead
Answer: no issue, but month instead
No issue, but Sept
Answer: 12
Answer: 2