Financial stability efficiency of Islamic and conventional banks

Abstract

We examine the financial stability efficiency of Islamic and conventional banks. We employ a meta-frontier stability function approach based on stochastic frontier framework to estimate financial stability efficiency of both bank groups, drawing on a sample of Islamic and conventional banks from 28 countries over the period 2003–2018. Our study result shows that Islamic banks have 5.30% higher stability efficiency compared to conventional banks. This result is robust when we examine country-wise and geographical region-wise stability efficiency of Islamic and conventional banks.