Global Shocks and Islamic Banking Stability: Asymmetric Transmission and State-Dependent Resilience
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Abstract
The global financial system is increasingly exposed to geopolitical tensions, financial uncertainty, and monetary tightening. While Islamic banking is theoretically expected to enhance systemic resilience through risk-sharing principles, empirical evidence on its response to asymmetric global shocks remains limited. This study examines the nonlinear and state-dependent transmission of global geopolitical and financial shocks to Islamic banking stability in Indonesia during 2015–2025. Using a combined Nonlinear Autoregressive Distributed Lag (NARDL) and Quantile Regression framework, the study captures both asymmetric transmission dynamics and heterogeneous responses across banking risk conditions. The findings reveal significant asymmetric effects, where Islamic banks exhibit relative resilience during periods of escalating global uncertainty but experience delayed adjustment during shock reversals. In addition, banks in higher-risk quantiles demonstrate stronger precautionary responses to global financial volatility, indicating a risk-averse disciplining effect rather than contagion-driven deterioration. However, the Federal Funds Rate remains significant across all quantiles, suggesting persistent exposure to global monetary spillovers. Framed within the maqashid shariah principle of hifz al-maal, the results suggest that Islamic banks may function as conditional shock absorbers, although their resilience remains partially constrained by integration with the global financial system. These findings provide important implications for tiered macroprudential regulation and the development of equity-based Islamic financing strategies.
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