More stable governments should improve banking systems’ financial stability by increasing the predictability of future public decisions. Our study explores the relationship between political stability, as captured by the voting share of governing parties, and banking system stability. Using a sample of 84 countries over the 2004–2017 period, our dynamic panel approach shows that voting power is significantly related to banking default risk only in presidential systems. An increase in the voting share of governing parties probably favors the enforcement of the president’s political agenda, thereby reducing the degree of political uncertainty. This seems to strengthen banking stability. Are banks vulnerable to unstable governments?
