This paper examines the relationship between bank capital inflows and financial stability. Using a sample of publicly-traded commercial banks in asia over the 2002-2008 period our empirical results show that higher banking inflows measure by the share of share of foreign liabilities in banking reduces systematic risk but increases bank-specific risk and total risk. A deeper investigation further suggests that an increase in total risk and-specific risk is driven by strong institutional development. Specifically higher foreign liabilities in banking exacerbate bank-specific risk and total risk in countries with greater economic freedom. Hence the reinforcement of prudential regulations is necessary to overcome bank-specific risk and total risk particularly when the countries move liberal economic environment.