Role of Regulatory Governance in Financial Stability: A Comparison of High and Low Income Countries

Abstract

This study explores the effect of regulatory governance on financial stability using cross-sectional data from 55 countries. The findings show that regulatory governance and various subcomponents of regulatory governance are positively correlated with financial stability in the selected countries. The results, based on the ordinary least square method, explain that the regulatory governance has a significant positive influence on financial stability in the selected countries. Further, concerning different dimensions of regulatory governance, it is showed that an individual impact of all components on financial stability is positive except for the strength of external audit, and supervisory independence and accountability. However, central bank`s independence and economic independence have a statistically significant effect on financial stability, whereas central bank accountability, supervisory independence and accountability, political central bank independence as well as the strength of external audit have an insignificant statistical influence on financial stability. Finally, the study concludes that regulatory governance and individual dimension of regulatory governance played the most significant role in improving financial stability in the selected countries.

Drivers of financial stability gap: evidence from sub-Saharan Africa

“…This gives the implication that improving the quality of regulations is a significant effort to minimize the gap in financial stability. According to Ullah et al (2022), regulations especially those related to government activities improve the stability of the financial system, hence escaping the detrimental economic and social impacts of a weakened financial sector.…”

“…Findings from the multiple regressions show that bank-specific factors and regulations are significant in determining stability in the financial system. Indeed, regulatory governance and its various dimensions significantly influence financial stability (Ullah et al, 2022). It was extensively Drivers of financial stability gap indicated from the analysis that regulations play a key role in protecting the credit of financial institutions, making them stable in operation.…”

Company-Level Factors of Non-Financial Reporting Quality under a Mandatory Regime: A Systematic Review of Empirical Evidence in the European Union

“…Therefore, policymakers may find this paper useful, as they can reassess their key role in facilitating sustainability initiatives, while increasing dialogue between various groups of stakeholders. It is important to acknowledge the positive influence that regulatory governance has on financial stability [67]. Finally, practitioners, including sustainability and risk managers, can benefit from reading this review, as it offers valuable information on factors that may negatively influence the forward-looking quality of sustainability reporting.…”