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This paper aims to measure the stability extent of the banking sector in Saudi Arabia, including Islamic and conventional banks (CBs), using quarterly data.

The paper uses seemingly unrelated regressions to estimate the determinants of the z-score.

The panel data model shows that Islamic banks (IBs) reduce the financial stability index relatively; meanwhile, they contribute efficiently to enhance the financial stability through the diversification of their assets. The Saudi banking sector exhibits strong concentration affecting the financial stability negatively.

The paper’s topic can be extended to cover the recent period.

The limited presence of IBs in the Saudi banking sector jeopardizes any effort to improve the financial stability.

By attracting more clients, IBs would contribute more to the financial stability in the Saudi economy. Also, the monetary authority has to expand the share of IBs in the financial system at least 50-50 compared to CBs.

The z-score is mostly analyzed with yearly data; in this paper we use quarterly data to describe at infra-annual frequency the variability of the z-score index. Also, we consider in detail the statistical properties of the banks’ data.

The purpose of this paper is to analyze the relationship between investment in public sector institutions and private investment in the Saudi economy by using Structural VAR model for testing the dynamic crowding‐out effect during the last four decades. Three fundamental variables are mobilized: the GDP, public investment and private investment. The linear relationship between structural shocks, which have an economic and financial interpretation, and the reduced random residuals has been established to evaluate the dynamic impacts. The findings show that the investment of the public sector institutions has an impact on the investment of private sector, and that the impulse response functions to the supply and demand shocks indicate that the crowding‐out effect is verified in the short and long run.