This study attempts to examine the effects of Macroeconomic variables and their fluctuations on banking risk. This impact has been examined using 20 commercial banks from Pakistan from year 2001-2017. The study has estimated the dynamic panel using Generalized Method of Moment (GMM). The empirical evidence suggests that GDP growth fluctuations, exchange rate fluctuations, and inflation fluctuations are the key variables that have a major effect on credit risk and liquidity risk exposure. Therefore, it is prudent for policymakers to keep on monitoring and make sure that the current system can diminish such fluctuations; in addition timely measures should be implemented to dampen the effects. The study also found proof of change in this interactive process according to the type of bank control. Banks in the Private sector respond more efficiently to the impacts of the macroeconomic factors as compare to public banks mainly, because public banks face more legal barriers and political pressures which do not allow them to diminish those effects and manage their loan efficiently. Supervisor:- Dr. Hasan Muhammad Mohsin