Institutional quality and risk in the banking system

Purpose This paper aims to offer an empirical study of the impact institutional quality on banking system risk and credit risk. Design/methodology/approach Applying cross-sectional dependent tests stationary check property our sample, panel corrected standard errors model is recruited as main estimator, while feasible generalized least squares, pool ordinary squares (OLS), robust OLS other estimators are used a robustness for unbalanced data 56 economies divided into three subsamples between 2002 2015. Findings The results show several significant contributions. First, improvement in important factor reduce effect institutions less well-capitalized, highly profitable high-economic growth countries. also stronger liquid systems. Notably, better helps concentrated system. Second, has negative relationship with risk, especially systems high-growth influence weaker well-capitalized Finally, positive trade openness, but it induces higher from openness. enhances foreign direct investment (FDI) inflow both These findings documented global sample subsamples: low lower-middle-income economies, upper-middle-income high-income economies. Originality/value provides some recommendations, policymakers, roles financial stability.