EU - ECB’s Mersch Says Islamic Banks May Suffer More in Downturns

European Central Bank Governing Council member Yves Mersch said Islamic financial institutions may be more vulnerable to economic slumps.

“Islamic banks may suffer more from the real economic downturn that normally follows financial turbulences as the losses of the customers are partly shared,” Mersch said at a conference on Islamic finance in Frankfurt today. “Moreover, the lack of product standardization and the missing harmonization of Islamic standards in general pose risks to the management of liquidity.”


Islamic finance comprises a range of services from retail banking to insurance that seeks to comply with the ethical guidelines laid down in Islamic law, or Shari’ah. Mersch said the worldwide issuance of Sukuk, or Islamic bonds, by governments and companies has dropped to an estimated $20 billion in 2010 from an estimated $50 billion in mid-2007.

Mersch also said that “as long as financial stability and the functioning of the transmission mechanism of monetary policy are not at risk, central banks should not interfere with the structure of finance.”

To contact the reporter on this story: Jeff Black in Frankfurt jblack25@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

Source :
http://www.bloomberg.com/news/2010-11-18/ecb-s-mersch-says-islamic-banks-may-suffer-more-in-downturns.html - Nov 18, 2010