Financial Stability: The Significance And Distinctiveness Of Islamic Banking In Malaysia

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Executive Summary

This paper explores the significance of Islamic banking in Malaysia for stability in the country's economy as a whole. Neither conventional theory nor Islamic economics puts forward a systematic explanation of financial intermediation; consequently, neither is capable of identifying destabilizing elements in the system. Instead, a flow-of-funds approach similar to Minsky's own is applied to the (post-) modern consumption-led) business cycle and financial (and asset) market. Malaysia's structural current account surplus contributes to the overcapitalization of domestic firms.

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