The Impact of Macroeconomic Determinants on Banking Stability and Risk

Stability and the bank's risk have become important, over the past few years and after the financial crisis of 2007. Many economic determinants at the micro and macro level create the risk of the banking and financial stability. Identifying and managing of these factors can help to reduce bank risk and also improve financial stability.In this paper, the impact of macroeconomic variables on risk and financial stability is examined across commercial banks of 18 countries during 2005-2014 with using panel data methods.The results show that the macroeconomic factors have significant effects on risk and banking stability. The economic growth and inflation rate increase the bank stability, but an increase in the exchange rate, budget deficit, and oil revenues reduce banking stability. According to the results, An increase in economic growth and decrease in inflation reduce credit risk but increases liquidity risk. The budget deficit is no significant effect on liquidity risk but also reduces credit risk.