The Effect of Instability of Macroeconomic Variables on Banking Resources and Expenditures in Iran

Today, banking system plays a very important role in growth and development of countries. From the very beginning of banks establishment, they have two main and traditional tasks, namely, the equipping and allocation of resources. These two important tasks are implemented so that they collect the people's deposits on one hand and put it in various forms of allocation, on the other hand. In performing these tasks, banks face different internal and external barriers that affect their responsibilities. One of the external factors affecting the banking system is the volatile environment of economy and macroeconomic uncertainty. The macroeconomic instability and uncertainty ultimately reflect into two main variables of each economy, namely, production and inflation. This research seeks to investigate the effect of uncertainty and instability of macroeconomic variables (production and inflation) on the resources and expenditures of Iran banking system using GARCH techniques and Error Correction Model (ECM). The results of the research show that the effect of instability and uncertainty of production growth on the growth of resources of the banking system (resource mobilization) is negative and significant and on the allocation of resources (growth of credits) is positive and significant, resulting in increasing the banks' credit risk. Moreover, in this study, the significance of the negative effect of instability of inflation on resource absorption and its positive effect on allocation of resources are not accepted.