Banking system stability: A global analysis of cybercrime laws

2025-11-30

AI Summary

This study examines how national cybersecurity legislation against cybercrime affects banking system stability. Using a novel cross-country panel dataset covering 132 countries and employing fixed-effects regression with multiple robustness checks, we find that stronger cybercrime legislation significantly enhances bank stability—primarily by improving funding liquidity and mitigating operational risk. Our contributions are threefold: first, we construct the first systematic, quantitative index of national cybercrime legislative strength; second, we identify and empirically validate three critical moderating dimensions—penal severity, institutional allocation of bank liability, and international judicial cooperation; third, we demonstrate that legislative effectiveness is markedly amplified in countries with rigorous enforcement, well-defined accountability mechanisms, and strong transnational legal coordination. These findings offer actionable policy insights for strengthening financial-sector cybersecurity governance and fostering effective cross-border regulatory collaboration.

Technology Category

• Natural Language Processing: Safety and Robustness
• Application Domains: Security
• Game Theory and Economic Paradigms: Coordination and Collaboration

Application Category

• Security and Privacy: Cyber-crime defenses and forensics
• Responsible Web: Algorithmic accountability and transparency on the web
• Web Mining and Content Analysis: Robustness and generalizability of Web mining methods

Abstract

We examine the role of cybercrime legislation around the world in shaping the stability of the banking system. We compile a novel dataset covering the enactment of cybercrime legislation in 132 developed and developing countries to empirically test this research question. We find that the enactment of cybercrime laws enhances the stability of the banking sector. This key finding holds across a comprehensive suite of robustness tests, including alternative measures of bank stability and model specifications. We document significant cross-sectional heterogeneity, with the effect being more pronounced in countries with heavier penalties for illegal cyber activities and legal frameworks that hold banks accountable for their cybersecurity practices. In addition, the positive impact is stronger in jurisdictions with greater international legal cooperation and effective enforcement mechanisms. We further investigate two channels (i.e., funding liquidity and operational risk) through which cybercrime laws may influence bank stability. Our results indicate that these laws can significantly bolster bank stability by enhancing funding liquidity and mitigating operational risk. Overall, our study highlights the crucial role of cybercrime legislation in fostering a secure and resilient banking environment. It offers new insights into how these laws contribute to bank stability on both individual and systemic levels.

Problem

• Examining global cybercrime laws' impact on banking stability
• Analyzing how legislation enhances bank stability through liquidity and risk
• Investigating cross-country heterogeneity in cybercrime law effectiveness

Innovation

• Novel dataset covering cybercrime laws in 132 countries
• Empirical analysis linking legislation to bank stability via liquidity
• Identifies stronger effects with penalties and international cooperation