Reengineering Financial Stability in a Digital World: SmartPLS Evidence on the Nexus of Regulatory Reform, Governance Dynamics, and Insurance Innovation in Indonesian Financial Institutions

This study examines the dynamic interplay between digitalization, deposit insurance systems, bank resolution mechanisms, and policy guarantee frameworks in fostering financial stability, with a particular focus on Indonesia's Deposit Insurance Corporation (LPS). A quantitative analysis was employed, and data were collected from 265 senior financial experts, including banking executives, regulatory officials, and policymakers. SmartPLS was used to explore the relationships among digitalization, deposit guarantee resilience, resolution mechanisms, governance quality, and financial stability. Our findings indicate that digitalization significantly enhances financial stability by streamlining processes, enabling real-time monitoring, and facilitating proactive risk management. Furthermore, robust deposit insurance systems and effective resolution strategies mitigate systemic disruptions and minimize contagion risks. Governance quality has emerged as a critical moderating factor that aligns regulatory objectives with sustaining market confidence, for Indonesia and similar institutions in emerging economies. Our study provides policy insights by integrating advanced digital platforms into deposit insurance operations, refining resolution frameworks through the timely utilization of data, and strengthening governance mechanisms to ensure policy responsiveness. By linking digital innovation with institutional resilience mechanisms, our study provides both theoretical and empirical contributions to the financial stability literature.