Financial Derivatives, Macroeconomic Variables and Banks’ Systemic Risk: Empirical Evidence from the Banking Sector of Pakistan

This study investigated the impact of financial derivatives’ usage and macroeconomic forces on systemic risk of the banking firms in Pakistan for the year 2017 to 2021. Study utilized panel data approaches for investigating the impact of variables on systemic risk of the banks. This is robust to a number of controls. Results revealed that increasing use of derivatives increase systemic risk of the banks and there exist a strong relationship between macroeconomic forces and systemic risk of banks. Findings have policy implications for regulators and risk managers because unprecedented situation may strike us without warning.