Economic uncertainty and bank stability: Conventional vs. Islamic banking

In this paper, we explore whether economic uncertainty differently affects the default risk of Islamic and conventional banks. Using a sample 568 banks from 20 countries between 2009 2018, use World Uncertainty Index (WUI) by Ahir et al. (2018) to conduct study based on comparable measure across countries. Our findings indicate that increases but does not affect banks’ risk. To understand why, influence religiosity, institutional factors, bank-level heterogeneity. We observe is significantly affected in all types countries, such difference with mainly holds for higher income diversification, larger size, are publicly traded. Moreover, our show suffer more terms stability religiosity share profit-loss sharing (PLS) contracts. results robust alternative estimation techniques deal endogeneity variable measurements.