<p>The financial soundness of banks is crucial for economic stability, particularly in underdeveloped regions with predominantly bank-based financial systems. The Gulf Cooperation Council (GCC) presents a unique context, hosting the world’s largest dual banking system, where conventional interest-based banks operate alongside Islamic banks. Notably, the region accounts for approximately 60% of the global Islamic banking assets. Despite the growing importance of Islamic banking, there is limited empirical evidence on how such banks respond to crises relative to conventional counterparts. This study addresses this gap by examining the impact of financial and non-financial crises on the financial soundness of 61 GCC banks over the period 2005–2022. A comprehensive set of parametric and non-parametric methods (intertemporal bivariate analysis, multiple regression analysis, and Global Cost Malmquist Productivity Index) was employed to enhance the robustness of the findings. The results indicate that conventional banks were adversely affected by both the 2007–2008 global financial crisis and the COVID-19 pandemic, whereas Islamic banks demonstrated notable resilience. Both parametric and non-parametric analyses converged on this conclusion. However, Islamic banks experienced significant reductions in capital and liquidity reserves during crises, highlighting their relatively higher inherent liquidity risk. These findings suggest that Islamic banks in the GCC can maintain stability under adverse conditions, but policymakers and bank managers should account for their higher sensitivity in terms of liquidity. The study provides empirical insights into crisis management and risk assessment in dual banking systems, contributing to the understanding of financial stability dynamics in emerging banking markets.</p>