Supervisory, regulatory, and capital adequacy implications of profit-sharing …

Purpose – The aims of this paper are: first, to draw attention to the issues of displaced commercial risk (DCR) which arise as a result of the risk characteristics of profit-sharing investment accounts (PSIA), the main source of funding of Islamic banks in most jurisdictions; and, second, to present a value-at-risk approach to the estimation of DCR and the associated adjustments in capital…