Financial regulation, financial inclusion, and financial stability

Ebenezer Bugri Anarfo, Joseph Abor, Isaac Otchere and Sarah Serwah Boateng

Chapter 21 in The Elgar Companion to Financial Economics, 2025, pp 379-404 from Edward Elgar Publishing

Abstract: This study examines whether financial inclusion serves as a moderating factor in the connection between financial regulation and stability, taking into account different income categories of nations as defined by the World Bank: low-income, lower-middle income, upper-middle income, and high-income countries, to determine if the outcomes of the study will vary across these income groups. The study utilizes data from 170 countries spanning 2015 to 2023 and employs panel data analysis, specifically the two-step System GMM, to evaluate the impact of financial regulation and financial inclusion on financial stability. The findings reveal that financial regulation, financial inclusion, banks’ return on equity, non-performing loans, bank competitiveness, bank efficiency, economic growth, and inflation rate are key determinants of financial stability. The study recommends that to effectively manage financial stability, both financial institutions and governments must collaborate by implementing policies and strategies that address these crucial factors. Governments should concentrate on enhancing regulatory frameworks, promoting financial inclusion, and improving the macroeconomic environment, while financial institutions should prioritize efficiency, risk management, and innovation. By aligning policy measures with these drivers, both governments and financial institutions can bolster financial stability and foster a more resilient financial system.

Keywords: Financial regulation; Financial inclusion; Financial stability (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035341399
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