Project overview
Since the global financial crisis (GFC), the determinants of bank systemic risk have become a central focus in banking and finance literature (Louhichi et al., 2024; Nistor & Ongena, 2023; Kosmidou et al., 2017). Research has primarily examined factors such as bank size, interconnections with other financial institutions, and country-specific regulations (Karolyi et al., 2023; Gržeta et al., 2023). However, the relation between board diversity and bank systemic risk has largely been overlooked. This is notable given the growing body of evidence highlighting the critical role of board diversity in terms of gender and nationality in shaping firms’ risk-taking behaviour. This project aims to address this gap in the literature by investigating the impact of board diversity, specifically in terms of gender and nationality, on systemic risk in the dual banking system.
To date, no study has specifically explored the relationship between board diversity and bank systemic risk within a dual-banking system, where conventional banks (CBs) coexist with Islamic banks (IBs). This unique spatial context offers a significant contribution to the literature. First, in a dual-banking system, IBs are increasingly integral to the financial sector, significantly contributing to its growth. Globally, IB assets grew at a compound annual growth rate (CAGR) of 9.56% between 2012 and 2022, compared to a global banking asset CAGR of just 2.47% (FSB, 2023). Second, prior studies highlight the distinct risk characteristics of IBs compared to CBs, largely stemming from differences in underlying principles (Abedifar et al., 2013; Abedifar et al., 2017). The prohibition of interest-based transactions (Riba) and excessive risk-taking (Gharar) in Islamic finance are widely recognised as key drivers of this divergence (Ebrahim et al., 2016). Third, dual-banking countries remain in the early stages of addressing diversity, with many economies still dominated by male leadership. This provides a distinctive spatial and cultural context for our study.
This research, therefore, investigates two primary questions:
1. Does board diversity influence systemic risk in a dual-banking system?
2. Are there differential impacts of board diversity on systemic risk between CBs and IBs?
To date, no study has specifically explored the relationship between board diversity and bank systemic risk within a dual-banking system, where conventional banks (CBs) coexist with Islamic banks (IBs). This unique spatial context offers a significant contribution to the literature. First, in a dual-banking system, IBs are increasingly integral to the financial sector, significantly contributing to its growth. Globally, IB assets grew at a compound annual growth rate (CAGR) of 9.56% between 2012 and 2022, compared to a global banking asset CAGR of just 2.47% (FSB, 2023). Second, prior studies highlight the distinct risk characteristics of IBs compared to CBs, largely stemming from differences in underlying principles (Abedifar et al., 2013; Abedifar et al., 2017). The prohibition of interest-based transactions (Riba) and excessive risk-taking (Gharar) in Islamic finance are widely recognised as key drivers of this divergence (Ebrahim et al., 2016). Third, dual-banking countries remain in the early stages of addressing diversity, with many economies still dominated by male leadership. This provides a distinctive spatial and cultural context for our study.
This research, therefore, investigates two primary questions:
1. Does board diversity influence systemic risk in a dual-banking system?
2. Are there differential impacts of board diversity on systemic risk between CBs and IBs?
