Abstract:

The study examined the stabilization effect of fiscal policy on banking system stability in Nigeria between 1985 and 2019.  The study adopted ADF, and Cointegration technique to check the stationarity and to determine the existence of long run relationship among the variables. Ordinary least square technique was used to evaluate the interaction between fiscal policy and banking system stability. The finding indicates that fiscal policy actually has strong influence on banking system stability in Nigeria.  It further was discovered that among the fiscal policy variables, Public Debt has more effect on banking systems than other variables used in the study. This indicates that the more debt the government accumulates, the greater the instability in the banking system.  It is thus imperative to offer policy implications for Nigeria.  The study recommends that government should put appropriate checks in place to avoid borrowing that will creep into deficit since debt affects banking system stability. Finally, government should ensure that its borrowings are channelled towards productive segments of the economy to enhance Sustainable repayment of debt and the mechanisms for debt repayment must be severely adhere to.