Government debt to commercial banks and financial fragility

The financial fragility of banks has always been one of the main concerns of supervisors and decision makers in the banking system. In recent decades, financial stability as a goal of the economic system has been increasingly taken into account in policy making. Many of researches has focused on the role of government financing in the monetary system. But so far, the impact of government debt on commercial banks has not been investigated on financial frailty. The purpose of this study is to investigate the effect of government debt on commercial banks on the financial fragility index in Iran. For this purpose, data from 1979 to 2018 and ARDL method have been used. Results shows that the research hypothesis that the bank debt had a significant effect on the financial system's fragility was confirmed. The results also show a positive and significant relationship between inflation and financial system fragility. The regression coefficients shows that the development of the financial market and, more precisely, the increase in value of the stock market and the tax share of production, have a negative and significant relation with the financial fragility index.