The impact of regulation, financial liberalization, and mobile banking on banking crises : evidence from cross-country data

Abstract

This paper examines how financial liberalization, institutional quality, and mobile banking adoption affect the probability of a banking crisis using a panel of 36 countries over the period 2000 – 2021. Our key inference is that the relationship between financial liberalization and the probability of a banking crisis is depended in institutional quality. In strong institutional quality countries, the impact of financial liberalization on the probability of a banking crisis is a concave curve, increasing the likelihood of a crisis at low to moderate liberalization levels and reducing it at medium to high levels. Conversely, weak institutions do not exhibit an impact. Surprisingly, mobile banking adoption is associated with a decreased likelihood of a banking crisis, showing its benefits. Moreover, mobile banking adoption intensifies the impact of financial liberalization on the probability of a banking crisis only in countries with strong institutional quality. Additionally, in bank-based financial systems, mobile banking adoption can intensify the impact of financial liberalization on the probability of banking crises, aligning with the characteristics of centralized bank-based countries with commercial banks as intermediaries.