Risk and Regulation of Islamic Banking

Risk and Regulation of Islamic Banking

Foundations of Islamic Finance series

Edited by Mervyn K. Lewis, Mohamed Ariff and Shamsher Mohamad

From a single product offering in 1963, the Islamic financial services industry has grown to an estimated $1.6 trillion in assets. Products must comply with profit and risk-sharing criteria and regulations preventing banks from venturing into activities with high risk and excessive uncertainty. This timely volume analyses these matters and considers the range of new products, discussing both conceptual and practical dimensions. It connects Islamic finance to the mainstream theoretical literature on financial intermediation while also exploring its differences. The expert contributors also examine why an ethical foundation is important and why the system requires well-thought-out regulations to ensure outcomes that protect the community’s well-being.

Chapter 12: Financial market operations in the United States: ethical issues and lessons for Islamic banking

Raquib Zaman

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation, islamic economics and finance, money and banking


Whenever there is a financial crisis that leads to major economic downturn, a number of questions arise in the minds of investors and the general public. Was it the result of excessive speculation by some financial institutions? Or was it due to domestic and/or global economic factors that could not have been avoided by financial market operators? Or was it the consequence of slack or ineffective regulations of the markets by the governmental authorities? Or was it caused by deliberate floundering of laws regarding market operations? Or was the crisis due to unethical and unscrupulous conduct of financial market operatives? One common factor that can be found in the financial market collapses since the Great Depression of the 1920s is the preponderance of unethical (but not necessarily illegal) conduct on the part of financial market operatives, especially banking institutions. This chapter examines this aspect of the US financial markets.

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