The global financial crisis in 2008 has affected economies in many aspects. Besides the devastating effects of the crisis on banks, expansionary policies have been revived in consequence of economic recession. On the other hand, the recovery packages for financial sector have imposed a burden on public finance and therefore have increased borrowing requirement. Consequently, the interaction between the balance of public finance and the changes in structure of banking system has become more important within the context of global crisis. This paper investigates the association between bank’s lending strategies and financial instability in Turkish economy using ARDL approach to co-integration. The empirical results suggest that financial instability lead to change the lending structure of banking sector for public sector in Turkish economy.