The Impact of Policy Uncertainty and Economic Freedom on Bank Stability: Global Evidence

The objective of this study is to evaluate the impacts of policy uncertainty and economic freedom on the stability of national banking systems worldwide. The research sample includes 165 countries and covers the period from 1997 to 2021. The study employs panel data estimation methods including the fixed effects model, random effects model, Driscoll–Kraay standard errors approach, and system GMM. The findings consistently show that policy uncertainties, including world policy uncertainty, trade policy uncertainty, and global economic policy uncertainty, negatively affect bank stability. Additionally, economic freedom policies can help mitigate the negative impact of policy uncertainty.