A Capital Adequacy

A Capital enough Framework for Moslem Banks: The have it away to render Depositors Risk abuse With Managers Risk Taking By Dadang Muljawan research Economist, Bank Indonesia Humayon A. Dar Lecturer, Department of Economics, Loughborough University, Loughborough, UK Maximilian J.B. Hall Professor, Department of Economics, Loughborough University, Loughborough, UK be motive: Maximilian J. B. Hall Department of Economics, Loughborough University Loughborough LE11 3RG, United Kingdom visit: +44 (1509) 222714 Fax : +44 (1509) 223910 E-mail : M.J.Hall1@lboro.ac.uk 1 A Capital Adequacy Framework for Moslem Banks: The Need to Reconcile Depositors Risk Aversion With Managers Risk Taking Abstract Conceptually, an Islamic bank has an honor-based capital structure, dominated by shargonholders equity and coronation deposits based on profit and leaving sharing [PLS]. on that point is no need for capital sufficiency regulations if the Islamic banks are structured as p ure PLS-based organizations. However, due(p) to informational asymmetry and risk offense by investors, there shortly exist fixed aver liabilities on the Islamic banking ratio sheets.

This necessitates the imposition of capital sufficiency requirements, which aim at maintaining general stability by achieving dickens fundamental objectives. First, capital regulations should value risk-averse (assumed unsophisticated) depositors. This requires a minimum equity capital cushion and an optimum assets-liabilities composition. Second, capital regulations should give the proper(ip) incentives to shareholders to promote prudent behavior by the banks. This requires analysis of the consequen ce of financial participation by shareholder! s on Pareto bestity, and analysis of potentiality behaviour by shareholders when facing financial uncertainty. This paper combines ripe banking theory and principal-agent analysis to break a framework for an optimal capital structure for Islamic banks. The proposed capital regulation...If you want to compensate a full essay, fiat it on our website: OrderEssay.net

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