We use a classic Merton credit risk framework to argue that Islamic Banking Institutions (IBIs) face less incentive to take on risks than Conventional Banking Institutions (CBI). IBIs have less incentive for risk shifting both in and outside of distress situations. We test and confirm this...

Frontmatter -- CONTENTS -- List of Figures -- List of Tables -- 1 Reflecting on Islamic Banking and Financial Crisis: Risks, Reputation and Stability -- 2 Reshaping the Islamic Finance Industry: Applying the Lessons Learned from the Global Financial Crisis -- 3 Assessing the Resilience of...

It is generally argued that Islamic banks are safer than conventional banks. The prime reason is that their product structure is essentially asset-backed financing, while conventional banks rely heavily on leveraging, which was considered one of the main causes of the 2008 global financial...