Professor Haider Hamoudi spoke on Islamic finance at the University of California at Berkeley School of Law on April 9, 2011. His talk, titled "What is an Islamic Bank, and How Do We Regulate it," was part of a conference called "Ethics and Regulation: Critical Approaches to Islamic Banking." A brief summary of Professor Hamoudi's remarks:
There is an irony to the desire of Islamic financial institutions to seek bank licenses and function under applicable regulatory authority as “banks” given that, in their highly idealized conceptions in the form of the famed “two tier mudharaba”, they would be quite different institutions. They would be equity driven where banks are debt driven, and they would not serve, or would not serve as effectively, some of the primary functions of banks, which are to use economies of scale to manage information asymmetries and liquidity mismatches as they arise in the market. While it is true that these institutions do notexist in such idealized forms, and in fact regularly employ instruments and adopt transactional forms that resemble debt rather than equity, these are frequently justified within the practice as transitional, “borderline” transactions, to use Usmani’s term, en route to a purer and more “Islamic” system of financing. There is thus something of a tension as between what Islamic institutions are, what they purport to want to be, and the institutional form pursuant to which they wish to be recognized for regulatory purposes. This presentation explores this tension in some depth.