The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis

Bank stability and trust levels have been seriously affected by the 2007–2008 Global Financial Crisis, which led to the identification of a range of policies based on past experience intended to overcome the consequences of the crisis. The idea of cryptocurrency was introduced to handle the mistrust...

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Main Authors:	Othman, Anwar Hasan Abdullah, Syed Jaafar Alhabshi, Syed Musa, Haron, Razali, Mohd Noor, Azman
Format:	Article
Language:	English
Published:	Institutional Investor, Inc. 2019
Subjects:	HG1501 Banking HG201 Money HG3368 Islamic Banking and Finance
Online Access:	http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/1/72947_The%20Future%20of%20the%20Banking%20System.pdf

id	iium-72947
recordtype	eprints
spelling	iium-729472019-07-09T08:28:55Z http://irep.iium.edu.my/72947/ The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis Othman, Anwar Hasan Abdullah Syed Jaafar Alhabshi, Syed Musa Haron, Razali Mohd Noor, Azman HG1501 Banking HG201 Money HG3368 Islamic Banking and Finance Bank stability and trust levels have been seriously affected by the 2007–2008 Global Financial Crisis, which led to the identification of a range of policies based on past experience intended to overcome the consequences of the crisis. The idea of cryptocurrency was introduced to handle the mistrust of financial intermediaries that led to the liquidity crisis. This study investigates whether the new cryptocurrencies have been able to perform the functions of financial intermediaries and offer the confidence level required by bank depositors, examining their long-run effect on banks’ deposit mobilization. The study applies a cointegration test analysis with a vector error correction model to examine this relationship. Overall results indicate that in the countries studied increases in the market capitalization of the cryptocurrency industry have a significant negative impact on banks’ deposit variability, while decreases have a positive impact, with a long-run equilibrium relationship. The outcomes of the study suggest that in order to regain the trust of depositors and avoid the effects of the cryptocurrency industry, banks should be encouraged to invest directly in cryptocurrency or should consider cryptocurrencies as an alternative investment asset for their portfolio investment diversification strategies during bullish market conditions and avoid them during bearish market conditions. Also, banks can incorporate blockchain technology into their operation system and compete with the cryptocurrency industry side by side in the financial market. If neither of these options is taken, however, the banking system may not be able to compete and sustain in the long term using the current operational model. The outcomes of this study can be used as policy guidance by central banks and the banking industry for the betterment of the industry. Institutional Investor, Inc. 2019-06-27 Article PeerReviewed application/pdf en http://irep.iium.edu.my/72947/1/72947_The%20Future%20of%20the%20Banking%20System.pdf Othman, Anwar Hasan Abdullah and Syed Jaafar Alhabshi, Syed Musa and Haron, Razali and Mohd Noor, Azman (2019) The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis. The Journal of Wealth Management, 22 (2). pp. 1-9. ISSN 1534-7524 E-ISSN 2374-1368 https://jwm.iijournals.com/content/early/2019/06/24/jwm.2019.1.075 10.3905/jwm.2019.1.075
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG1501 Banking HG201 Money HG3368 Islamic Banking and Finance
spellingShingle	HG1501 Banking HG201 Money HG3368 Islamic Banking and Finance Othman, Anwar Hasan Abdullah Syed Jaafar Alhabshi, Syed Musa Haron, Razali Mohd Noor, Azman The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
description	Bank stability and trust levels have been seriously affected by the 2007–2008 Global Financial Crisis, which led to the identification of a range of policies based on past experience intended to overcome the consequences of the crisis. The idea of cryptocurrency was introduced to handle the mistrust of financial intermediaries that led to the liquidity crisis. This study investigates whether the new cryptocurrencies have been able to perform the functions of financial intermediaries and offer the confidence level required by bank depositors, examining their long-run effect on banks’ deposit mobilization. The study applies a cointegration test analysis with a vector error correction model to examine this relationship. Overall results indicate that in the countries studied increases in the market capitalization of the cryptocurrency industry have a significant negative impact on banks’ deposit variability, while decreases have a positive impact, with a long-run equilibrium relationship. The outcomes of the study suggest that in order to regain the trust of depositors and avoid the effects of the cryptocurrency industry, banks should be encouraged to invest directly in cryptocurrency or should consider cryptocurrencies as an alternative investment asset for their portfolio investment diversification strategies during bullish market conditions and avoid them during bearish market conditions. Also, banks can incorporate blockchain technology into their operation system and compete with the cryptocurrency industry side by side in the financial market. If neither of these options is taken, however, the banking system may not be able to compete and sustain in the long term using the current operational model. The outcomes of this study can be used as policy guidance by central banks and the banking industry for the betterment of the industry.
format	Article
author	Othman, Anwar Hasan Abdullah Syed Jaafar Alhabshi, Syed Musa Haron, Razali Mohd Noor, Azman
author_facet	Othman, Anwar Hasan Abdullah Syed Jaafar Alhabshi, Syed Musa Haron, Razali Mohd Noor, Azman
author_sort	Othman, Anwar Hasan Abdullah
title	The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
title_short	The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
title_full	The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
title_fullStr	The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
title_full_unstemmed	The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
title_sort	future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis
publisher	Institutional Investor, Inc.
publishDate	2019
url	http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/ http://irep.iium.edu.my/72947/1/72947_The%20Future%20of%20the%20Banking%20System.pdf
first_indexed	2023-09-18T21:43:27Z
last_indexed	2023-09-18T21:43:27Z
_version_	1777413292957892608

The future of the banking system under the dominance and development of the cryptocurrency industry: empirical evidence from cointegration analysis

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