After the global financial crisis, there are discussions in terms of liquidity risk management of banks, and in this context, many new tools, regulations, and mechanisms have been introduced by regulatory authorities. Islamic banks are also being governed by these tools and regulations. Liquidity risk is one of the important issues that needs attention in terms of resilience of Islamic banking sector. It can be defined as a shortcoming to cover financial liabilities and its management is related to managing the expected and unexpected cash outflows. A scrutiny of this important issue in an Islamic banking context is crucial to promoting efficiency, growth, and resilience of the Islamic financial industry.

The main objective of this dissertation is to critically examine the factors that affect liquidity risk management of Islamic banks and then to develop an alternative regulatory framework appropriate for liquidity management of these banks. While there are several studies on the performance, growth, and efficiency of Islamic banks, empirical studies from the regulatory and supervisory perspectives are very limited. Primarily, this dissertation seeks to fill this gap by examining liquidity risk management of ...

This paper aims to critically investigate the liquidity risk management of Islamic banks and develop an alternative regulatory framework appropriate for liquidity management of these banks. The specific risk profile of an Islamic bank requires developing a new and more efficient regulatory framework, which relies on risk-sharing and symmetric information among parties. The paper makes a differentiation between small local banks and internationally active Islamic banks and proposes to apply liquidity requirements only for internationally active Islamic banks. A new proposal for the liquidity coverage ratio (LCR) of Islamic banks is developed in this paper towards mitigating risks and concurrently protecting the interests of investment account holders. Minimum and maximum thresholds are proposed for each liquid asset in this new LCR framework. An alternative liquidity approach is discussed to complement the proposal and several policy options are suggested.