Deposit insurance and bank risk-taking: the moderating role of Islamic banking in the MENA region

Purpose This study investigates the impact of deposit insurance on bank risk-taking and examines how Islamic banking architectures moderate this relationship in the MENA region's dual banking system. Design/methodology/approach We apply panel quantile regressions to an unbalanced dataset of 136 commercial banks across 9 MENA countries from 2011 to 2023. The empirical framework uses four distinct risk dimensions: SDROA, POR, a normalized Z-score and ROA. Findings Deposit insurance significantly reduces bank risk-taking, demonstrating that stabilization benefits dominate classical moral hazard in fragile regimes. This effect is highly asymmetric and concentrates heavily in high-risk tails. Through unique governance and contractual constraints, Islamic banking operations strengthen asset volatility reduction but weaken portfolio asset-shifting trends. Practical implications Regulators should implement differentiated deposit insurance schemes tailored specifically to the unique risk-sharing properties of Islamic contracts. Overhauling and strengthening Sharia governance frameworks provides a critical mechanism to optimize overall macro-financial stability. Originality/value This is the first empirical work to model the structural interaction between deposit insurance safety nets and Islamic corporate frameworks across an entire risk distribution using a quantile approach.

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