Several financial and economic crises, including the 1997 Asian financial crisis and the recent crisis; The subprime crisis has triggered financial instability around the world. Conditions in the global financial system have deteriorated sharply as idiosyncratic financing and asset liquidity tighten and unexpected and larger losses associated with subprime-linked portfolios have weakened the balance sheets of global financial institutions. Furthermore, these disruptions in financial markets also result in constraints on the flow of credit to households, including families, and businesses. Household balance sheets have come under pressure due to job losses, declining net worth and tighter credit conditions (IMF, Global Financial Stability Report, April 2009). Therefore, many governments have taken initiatives and intensified their intervention measures in an attempt to restore financial stability to their financial system. Reflecting the impact of crises and excess capital, particularly in petrodollar countries, including the Gulf Cooperation Council (GCC), it therefore provides an opportunity for Islamic Financial Institutions (IFS) to globally, including Islamic banks, to grow significantly in recent years. For example, Shariah-compliant assets increased by 28.6% in 2009, to $822 billion, from $639 billion in 2008 (The Banker, November 2009). According to Moody's, 2009, Islamic banking assets and assets under management are expected to reach $1 trillion by 2010. Furthermore, the potential market for this system is worth at least $5 trillion. IFCs, including Islamic banks, were launched globally around three decades ago. a few years ago, and their number increased from one in a country in 1975 to more than 300 institutions...... middle of paper ...... Islamic banks in Malaysia for the period 2000 to 2008 Islamic banks in this study consist only of full-fledged Islamic banks which operate under the Islamic Banking Act of 1983, while commercial banks are governed by the Banking and Financial Institutions Act (BAFIA). 1989. The terms commercial banking will be widely used and interchanged with the concept of conventional banking in research. 1.5 STRUCTURE OF THE STUDYThe structure of the study is as follows. Chapter 2 presents a review of the literature on the study. Chapter 3 presents an overview of the specificities of the Islamic banking system from an analytical and prudential point of view. Chapter 4 explains the theoretical framework, methodology, and variables and data used in the study. Section 5 presents the analysis and empirical results. Section 6 summarizes the conclusion, policy implications and suggests topics for further research..