Financial inclusion and banking stability: Does interest rate repression matter?

The role of interest rate repression in affecting banks' behavior has been well-studied in the literature. What has not been examined is how financial inclusion affects this relationship. Using cross-country data, we test the association between financial inclusion and banking stability in the presence of interest rate repression. Using bank-level data, we find that financial inclusion exerts a positive and statistically significant impact on banking stability, notwithstanding interest rate repression. The findings support the fact that financial inclusion is beneficial for banking stability, even after accounting for interest rate controls.