Bank capital adequacy requirements and risk-taking behavior in Tunisia: A simultaneous equations framework

Abstract

We extend exiting literature on the efficiency of capital adequacy requirements in reducing risk-taking behaviour of Tunisian commercial banks using a new risk measure: the weighted-assets to total assets. Thus, using a simultaneous equations framework, we reach four main results. First, interaction between capitalization and risk level is negative, which means that an increase in capital is followed by a decrease in banking risk-taking. Second, Tunisian banks dispose of a weak institutional and regulatory level. Third, largest banks are the best managers of their risk, since they have more experience in managing risk levels through diversification. Finally, we found a negative relationship between size and bank capitalization, indicating that more bank is large, more its risk level is low.