Basel’s disproportionate impact on Islamic banks

New Basel III rules on the liquidity buffer will significantly and disproportionately affect Islamic banks because of the shortage of assets that meet the high-quality liquid assets (HQLA) requirement under the new rules. A better solution would be to recognize the challenges that Islamic banks face that conventional banks do not and allow them to hold short-term sovereign sukuk as Level 1 HQLA, even where those sukuk would not otherwise be classified as Level 1 assets.

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