A Capital Adequacy

A Capital enough Framework for Moslem Banks: The deliberate to admit 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 correspondent motive: Maximilian J. B. Hall Department of Economics, Loughborough University Loughborough LE11 3RG, United Kingdom squall: +44 (1509) 222714 Fax : +44 (1509) 223910 E-mail : M.J.Hall1@lboro.ac.uk 1 A Capital Adequacy Framework for Muslim Banks: The Need to Reconcile Depositors Risk Aversion With Managers Risk Taking Abstract Conceptually, an Islamic bank has an virtue-based capital structure, dominated by sh areholders 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 structu red as pure PLS-based organizations. However, due(p) to informational asymmetry and risk execration by investors, there shortly exist fixed sit liabilities on the Islamic banking ratio sheets.

This necessitates the imposition of capital adequateness requirements, which aim at maintaining general stability by achieving deuce 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 salutary incentives to shareholders to promote prudent behavior by the banks. This requires analysis of the enc umbrance of financial participation by share! holders on Pareto optimality, and analysis of authority behaviour by shareholders when facing financial uncertainty. This paper combines modern 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 get a full essay, fiat it on our website: OrderEssay.net

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