ARTICLE - Depositor Sensitivity to Risk of Islamic and Conventional Banks: Evidence from Indonesia

Depositor Sensitivity to Risk of Islamic and Conventional Banks: Evidence from Indonesia

The International Journal of Business & Finance Research, 2011

Erie Febrian
University of Padjadjaran
Aldrin Herwany
Department of Management, University of Padjadjaran; Centre for Management Studies (LMFE) University of Padjadjaran

Abstract:     

Islamic banks operate without involving interest, and therefore are believed to be less risky during the financial crisis than are conventional banks. This advantage may not be significant if government either partially or fully guarantees any bank deposit at certain level. In other words, public can be indifferent to risk of both Islamic banks and conventional banks in the existence of deposit insurance. However, there have been insufficient studies that cover issue on the impact of deposit insurance on depositors’ behavior that operates market discipline.

This research conducts empirical tests on whether risk of Islamic banks and conventional banks have influenced depositors in Indonesia, during the period of blanket scheme application (January 2002 - August 2005), and during the period of explicit deposit insurance implementation (September 2005 - December 2009), using cross-section analysis. This research also investigates behavior of Indonesian depositors towards risk of both types of bank during the US crisis through panel data analysis. We employ data of all insured domestic banks in Indonesia, from January 2002 to December 2009. 

Keywords: Bank Risk, Deposit Insurance, Market Discipline, Islamic Bank

Working Paper Series

 

The article can be found here : http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1659852 Social Sciense Research Network