Regulation and risk taking in the banking industry: evidence from Tunisia
by Amel Belanes; Afef Ben Hajiba
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 3, No. 1, 2012

Abstract: This research highlights the impact of capital regulation and franchise value on bank risk taking in the Tunisian context. Using a panel set of Tunisian commercial banks during the period spanning from 1997 to 2007, our study puts in evidence that stringent capital requirements help deterring the bank risk taking. Similarly, banks with high franchise value may have an incentive to avoid risky business strategies. However, empirical findings clearly bring forth that the intensity of such decrease varies with the risk taking measurement. Capital regulation allows reducing both the market risk and the insolvency risk but has no effect on the specific risk of the bank; while the franchise value has a negative effect on only the market risk of the bank. Overall, our study indicates that capital allocation should be more risk sensitive and that the whole bank risk taking ought to be deeply investigated and quantified.

Online publication date: Sat, 06-Apr-2013

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