Considering the country governance, market concentration and financial market dynamics are key explanatory indicators, this study has examined the stability trends in commercial banks of Pakistan. Overall sample of 28 banks is considered, adding both conventional and Islamic banks into consideration for the panel regression models like fixed effect and random effect. Findings for overall sample indicates that both stability measures in the form of z-score ROA and ROE are significantly and negatively affected by poor control over corruption, regulatory quality, market concentration, financial market development and increasing non-performing loans. For conventional banking, key determinants of financial stability are control over corruption, political instability, market structure and credit risk. For Islamic banking firms, corruption and government effectiveness, capital adequacy ratio, market structure and financial market development are significant determinants, affecting Z measures of stability. However, through lending interest rate, we do not find any significant relationship with both stability measures. Study findings are very useful for country officials, risk officers, and other stakeholders in financial markets who want to explore the relationship between country governance and financial market dynamics in the economy of Pakistan. In addition, study has experienced various limitations like non-consideration of bank-based and macroeconomic risk factors, international trends in banking and their influence on domestic banks of Pakistan, which could be reconsidered in coming research.

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The aim of this present study is to investigate the impact of systematic risk and economic dynamics on liquidity reserve of banking firms in Pakistan. Data for stock return and market return is collected from Data stream, while for all other factors World Development Indicator (WDI) database is selected. The findings of Pooled Regression have suggested that Liquidity Reserves for overall banking Industry of Pakistan significantly affect by Systematic Risk and Key Economic Dynamics. Panel data Models are applied to check whether there is cross sectional heterogeneity in selected financial firms or not. The study period consists of last 15 years 2001-15, due to the availability of the data set. Moreover, other economic indicators like Lending Interest Rate and Inflation can be under observation for the future studies. As per the best perception of researchers, this is the first study in this context, addressing the Liquidity Management and selected key factors.

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