The existence of a confirmed causal relationship in the economic literature between economic growth and banking sector stability justifies the importance of examining the factors affecting the fragility of the banking system. Due to its functional nature, the banking system is always exposed to various types of risks such as asymmetric information, bank runs, adverse selection, and moral hazards, which can change the functioning and stability of this system. Institutional quality is one of the indicators that has been considered by economic and banking scholars as a factor affecting the fragility of the banking system in recent economic studies. Therefore, the aim of the present study is to examine the effects of the global governance index as an institutional indicator on the fragility of the Iranian banking system. For this purpose, consolidated data related to 17 banks active in the Tehran Bahadur Stock Exchange for the period 2008-2022 were collected and evaluated using the generalized moments of system (GMM-SYS) approach. The results obtained from the estimation of the generalized moments model (GMM) show that governance indicators play an effective role in reducing the level of non-performing loans (NPL) as a proxy for the fragility of the banking sector in Iran. The negative and significant coefficients of indicators such as the quality of laws and regulations, political stability, corruption control, and government effectiveness indicate that improvements in various dimensions of governance can lead to a reduction in structural risks and an increase in financial stability in the country's banking system.