How different are Islamic banks from conventional banks? Does the recent crisis justify a closer look at the Sharia-compliant business model for banking? When comparing conventional and Islamic banks, controlling for time-variant country-fixed effects, we find few significant differences in business orientation. There is evidence however, that Islamic banks are less cost-effective, but have a higher intermediation ratio, higher asset quality and are better capitalized. We also find large cross-country variation in the differences between conventional and Islamic banks as well as across Islamic banks of different sizes. Furthermore, we find that Islamic banks are better capitalized, have higher asset quality and are less likely to disintermediate during crises. The better stock performance of listed Islamic banks during the recent crisis is also due to their higher capitalization and better asset quality.<br/><br/>Highlights<br/><br/>► We compare conventional and Islamic banks across 22 countries with both bank types. ► Islamic banks are less efficient, but intermediate more, especially during crises. ► During crises, Islamic banks are better capitalized, with lower loan losses. ► Recent stock performance of Islamic banks due to more capital and lower loan losses.

Abstract We study the liquidity demand of large settlement banks in the UK and its effect on the money markets before and during the subprime crisis of 2007–08. We find that the liquidity demand of large settlement banks experienced a 30% increase in the period immediately following August 9 2007, the day when money markets froze, igniting the crisis. Following this shift, liquidity demand had a precautionary nature in that it rose on days of high payment activity and for banks with greater credit risk. This caused overnight interbank rates to rise, an effect virtually absent in the precrisis period.