The Effect of Debt Commitments on Friability of Banking System: (Experience of the Islamic Banks in the Recent Financial Crisis)

The nature of capitalism, According to Minsky, makes the debt commitments diverge from their equilibrium amount over time and the growth of debts and vast reduction of safety margins are the main reason of friability of financial System. It is obvious that this trend gradually increases deviation toward the big crises. This is exactly the matter that caused the 2008 crisis and proved that for the conventional banking system. However, in the Islamic banking system, which is based on the asset-backed contracts, most of the debt commitments are related to the real sector of the economy and this makes the totality of the system less friable and more stable facing the financial crisis. Using 11 sample indexes to evaluate the 71 Islamic banks performance shows that there is no meaningful deference in the performance of Islamic banks before and after recent financial crisis. It means that Islamic banking was stable in the recent crisis.