Financial Inclusion, Political Risk, and Banking Sector Stability: Evidence from Different Geographical Regions

This study specifically examines the impact of financial inclusion and domestic political risk on banking sector stability for 105 countries operating in the six different geographical regions between 2009-2017. By performing the dynamic panel data estimation technique (GMM-System), the estimation results underscore that a higher level of financial inclusion increases banking sector stability globally, especially in South and East Asia and the Pacific region. Besides, the results reveal that a decline in political instability leads to rising banking sector stability globally, in particular the OECD High-Income region. Overall, the results provide evidence for the significant role of financial inclusion and domestic political risk in increasing stability in the banking sector and imply significant implications for policymakers and banks' managers.