The purpose of this research is to investigate the relationship between stock market development, business cycle and risk of the banks. The statistical population of the study is all banks whose shares were accepted in Tehran Stock Exchange from 2010 to 2015. The study selects 10 banks, which were active throughout the entire research period on the stock market. The research data were extracted from the financial statements of the companies and analyzed using regression models based on panel data. The research findings show that there was a direct and significant relationship between stock market development and risk of banks. In addition, the effect of stock market development on risk of banks was different in the presence or absence of a crisis, and the financial crisis in banks reduced the impact of the financial development on the risk of banks. The results also show that during the periods of commercial boom, the effect of the financial market development on the risk of banks was more than the periods of the recession.