Because of their importance to both financial stability and a nation’s economy, banks are heavily regulated in most countries. Banks are often subject to minimum capital requirements based on an international set of capital rules, the Basel Accords, in addition to additional restrictions meant to maintain liquidity. Most nations have institutionalized the fractional reserve banking system, in which banks keep liquid assets that are only partially equivalent to their current obligations.
The government owns ordinary central banks and is tasked with quasi-regulatory duties like overseeing commercial banks or regulating the cash interest rate. In the case of a crisis, they serve as the lender of last resort and often supply liquidity to the financial system.
This type of banking is based on several well-known Islamic law-based ideas. Islamic banks uphold Islamic legal principles. Interest is a notion that is prohibited in Islam; hence it must be avoided in all financial activity. Instead, the bank makes money (markup) and charges for the lending options it provides to clients.
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