Threshold Effect of Digital Financial Inclusion on Bank Stability: International Evidence

Abstract

This study examines the threshold effect of digital financial inclusion on banking stability across 65 countries from 2011 to 2022. The findings reveal a U-shaped nonlinear relationship between digital financial inclusion and banking stability, as demonstrated using both Bayesian and Feasible Generalized Least Squares (FGLS) estimation methods. Furthermore, financial development, economic growth, and institutional quality contribute to enhancing banking stability. Conversely, higher bank concentration and inflation negatively impact stability in the banking sector. Based on these insights, the authors propose several policy recommendations to strengthen bank stability within the sampled countries.