Successful development of the economy is based on the effective and stable performance of credit institutions. This paper discusses some of the existing efforts to evaluate stability in the financial or banking system and brings attempts to construct the banking stability index (BSI), taking into account indicators of the financial strength of banks and major risks affecting banks in the banking system. The BSI is then used for evaluation of banking stability in the European Union (EU) countries. Results showed that in 2014 countries with the most stable banking sectors were Luxembourg and Estonia. On the opposite end of the scale were banking sectors in Spain, Portugal and Greece. The outcome of the study showed a decline of the average banking stability in EU countries during the period of 2005-2008 and its improvement since 2009. The improvement in last year's was positively affected mainly by the development of the capital adequacy.