Islamic banking regulation and supervision: a case study of Jordan
thesisposted on 09.12.2010, 14:14 by Qasem Abdel Al
Regulation and supervision of banks has acquired a great interest over the last two decades in order to control banks' risks after many shocks affected banks' soundness. On an international level, the standards of Banking Supervision Committee of Basel have become the international standards for all banks in developed and developing countries. Basel standards were designed basically for conventional banks. Nevertheless, as Islamic banks are based on profit-loss-sharing (PLS) arrangements, some of these standards are not applicable to Islamic banks. The objective of this study is to investigate the foundations for regulation and supervision of Islamic banks. To achieve this objective, the study has adopted two methodologies. The first methodology is based on longitudinal data for banks in Jordan for the period 1990-2000. This methodology covers the effectiveness of capital regulation that aims to control banks' risk; also, credit risk, liquidity ratio, and loan-loss- provisions are tested. Regression of OLS, fixed and random effect were used. The second methodology is based on a questionnaire approach. Questionnaires are designed to answer seven questions relating to the general objectives of regulation and supervision of Islamic banks, the objectives of deposit protection, licensing conditions, credit risk, liquidity risk, factors determining the capital adequacy ratios and the information disclosures. Data is gathered from the Central Bank of Jordan, Islamic banks, conventional banks and external auditors in Jordan. Descriptive and variance analyses are used to analyze this data. It is declared that the characteristics of the PLS and their risks are different from those of conventional banks, therefore, Islamic banks are in need of special capital adequacy ratios, internal control systems, risk and liquidity management policies, and information disclosure standards appropriate for their characteristics.
- Business and Economics