Scrutinizing Global Banking Fragility: Are Larger or Smaller Banks More Fragile?

Abstract

The study focuses on the funding fragility arising from the nature of the
banking business due to asset-liability mismatches. Incorporating seven
(7) countries with dual banking systems, the study aims to assess the
global funding fragility of Islamic and conventional banks. The study
employs a random effect model with a robust standard error that spans
the period from 2009 to 2018, made up of 10-year unbalanced panel
data. Islamic and conventional banks should be more cost-efficient and
earn greater profitability to reduce funding fragility. Banks with wider
income diversification and a higher capital level have a better advantage
in lessening funding fragility. Banks that offer high financing growth are
exposed to greater credit risk but empirically manage to control the
funding fragility. The interaction effect reveals that larger conventional
banks are less fragile than smaller conventional banks. On the contrary,
larger Islamic banks are found to be more fragile than smaller Islamic
banks.