Depository institutions: Reforms along the lines of Islamic banking principles

Depository institutions play an important role in today's economic activities. Debt contracts are the most commonly used tools of those institutions. This dissertation affirms that debt contracts are risky for economic stability, especially when the overall indebtedness that countries, banks, and individuals have reached is considered. In order to carry the dissertation theme, a fundamental reform in the depository institutions daily practices is suggested. Limiting the depository institutions reform to supervisory and regulatory measures, albeit necessary, is not enough and might be dangerous. This dissertation investigates the possibility of the implementation of the main idea of Islamic banking as part of the needed reform for the depository institutions in the US. Making the liability side of the depository institutions based on the principle of sharing (equity instead of debt contract) will, this dissertation claims, eliminate any need for deposit insurance.;Commercial banks and savings and loans were considered as representatives of depository institutions. The task of this dissertation was as follows. First, a comprehensive review of the mainstream Western economists proposals for the needed reform in the depository institutions was presented in the second chapter. These proposals were classified into nine broad categories. The third chapter is an annotated bibliography of Islamic banking. That chapter familiarizes the reader with the entire field of Islamic banking and not only with the basic discussion of this dissertation. The fourth chapter is about mutual funds. In that chapter, the extraordinary dominance of the financial markets by mutual funds was investigated. In the US, mutual funds are the best candidates for showing the practical side of having banking based on the Islamic principle. It was shown intuitively that mutual funds can be extended to cover other banking activities. The fifth chapter is devoted to the summary and conclusions of the dissertation.