Managing Displaced Commercial Risk in Selected GCC Islamic Banks: An Empirical Test for Robustness

An empirical study on the robustness of the Alpha factor in the selected GCC Islamic banks. Alpha factor is a value determined by using the formula proposed by the Islamic Financial Services Board (IFSB) as an alternative for Capital Adequacy Ratio for Islamic banks, where Profit Sharing Investment Accounts (PSIA) are treated as semi-deposits with a part of or entire risk on the PSIAs being borne by the shareholders. Furthermore, it is demonstrated that the regulatory practice in this regards needs improvement on credibility. Grounds are proposed that would be beneficial for the policy makers in the development of genuine Islamic banking that will make a difference in the global scene in general, and that will improve the credibility in particular.