Basel Accord III -Implication for the Financing Behaviour of Islamic Banks

Banking regulations play an inevitable role for the stability of a country’s financial system and economy at large. Banking regulation on capital requirements known as Basel III will have a large effect on the world’s financial systems and economies. On the positive side, toughened capital and liquidity requirements should make national and global financial system safer. On the other side, enhanced safety will come at a cost, since it is expensive for banks to hold extra capital and to be more liquid. Loans and other banking services will become more expensive and harder to obtain which will result in slower economic growth due to higher credit costs and reduced credit availability. Therefore, it is a great need to empirically investigate the magnitude of these effects to measure the trade‐off in the context of Islamic banking Institutions. The study use Panel data technique to empirically analyze the affects of Basel I and II on the financing behavior (in terms of financing volume, sp