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Does Fractional Reserve Banking System Exist In Indonesian Islamic Banking?

Author

Listed:
  • Yaser Taufik Syamlan

    (STEI TAZKIA)

  • Nur Istiana

    (STEI TAZKIA)

Abstract

Fractional Reserve Banking is the banking and financial system that have been applied in most countries around the world. This research aims to look at the impact empirically and at the contributions given from the components of fractional reserve banking against inflation that occurs in Sharia Commercial Banks and Sharia Business Unit. The fractional reserve banking components covered in these studies are statutory reserve requirement, total deposit, total financing, Mismatch Ratio, and Total non-performing financing. This research is using VAR VECM and ECM as analysis tools and also collecting secondary data from OJK that spanned from June 2014 to September 2018. The results of this research have found that Indonesian Islamic bank is doing the fractional reserve banking system (FRBS). Furthermore, the largest contributor of FRBS in Sharia Commercial Bank (BUS) is the Statutory Reserve Requirement while in sharia Business Unit the results showed that Third Party Fund and Mismatch ratio gives the greatest contributions against inflation. Interestingly, the UUS has greater contribution and shock to the inflation if we compare to the BUS. To prevent the effect of it in the future, controlling mismatch and introducing the irrevocable investment account might be the solutions.

Suggested Citation

  • Yaser Taufik Syamlan & Nur Istiana, 2018. "Does Fractional Reserve Banking System Exist In Indonesian Islamic Banking?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 4(2), pages 369-400, November.
    • Handle: RePEc:idn:jimfjn:v:4:y:2018:i:2j:p:369-400
    DOI: https://doi.org/10.21098/jimf.v4i2.1009
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    References listed on IDEAS

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    1. repec:eme:hppsss:v:31:y:2015:i:2:p:183-200 is not listed on IDEAS
    2. Philipp Bagus & Amadeus Gabriel & David Howden, 2016. "Reassessing the Ethicality of Some Common Financial Practices," Journal of Business Ethics, Springer, vol. 136(3), pages 471-480, July.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fractional Reserve Banking; Islamic Banking; Mismatch; Inflation;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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