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

Erie Febrian

University of Padjadjaran

Aldrin Herwany

Department of Management, University of Padjadjaran; Centre for Management Studies (LMFE) University of Padjadjaran

The International Journal of Business and Finance Research, Vol. 5 No. 3, pp. 29-44, 2011

Abstract: Islamic banks operate without involving interest, and therefore are believed to be less risky during financial crises than conventional banks. This advantage may not be significant if the government either partially or fully guarantees bank deposits. In the presence of deposit insurance the public can be indifferent to risk of both Islamic and conventional banks. However, insufficient studies have examined the issue of deposit insurance impact on depositor behavior and market discipline. This research conducts empirical tests on whether the risk of Islamic and conventional banks influence depositors in Indonesia, during two periods using cross-sectional analysis. This research also investigates the behavior of Indonesian depositors towards risk of both bank types during the US crisis through panel data analysis. Data from all insured domestic banks in Indonesia, from January 2002 to December 2009 are examined.(source)