Interconnectedness between Islamic and conventional banks: a multilayer network view

Abstract

Purpose This study aims to examine information (stock return, volatility and extreme risk) spillovers and interconnectedness within dual-banking systems. Design/methodology/approach Using multilayer information spillover networks, this paper conduct a deep analysis of contagion dynamics among 24 Islamic and 46 conventional banks from 2006 to 2022. Findings The findings show the network’s rapid response to financial shocks. Through cross-sector analysis, this paper identify information spillovers between and within Islamic and conventional banking systems. Furthermore, this research illustrates distinct roles played by Islamic and conventional banks within the multilayer network structure, contingent upon the nature of the financial shock. Practical implications Understanding the differential roles of Islamic and conventional banks in information transmission can aid policymakers and financial institutions in devising more effective risk management strategies, thereby enhancing financial stability within dual-banking systems. Originality/value This study contributes to the literature by emphasizing the necessity of examining contagion mechanisms beyond traditional single-layer network structures, shedding light on the shadow dynamics of information transmission in dual-banking systems.