Public debt, rule of law and banking sector stability in Nigeria

Abstract This study examines the long-run relationship between public debt and the stability of the banking sector in Nigeria, with a particular focus on the moderating influence of the rule of law. Employing cointegration techniques such as FMOLS, DOLS and CCR, the analysis reveals that public debt significantly destabilizes the banking system, whereas institutional quality contributes to enhanced stability. However, the interaction between debt and the rule of law becomes negative. This indicates that excessive indebtedness may undermine the advantages of institutional strength. These findings highlight the necessity of prudent fiscal management in conjunction with robust legal and institutional frameworks to ensure financial stability.