Abstract EN:

I aim at studying internal mechanisms the Basel regulation induces on bank’s risk taking, particularly impacts of risk sensitive requirements. Actually regulation consists in a capital to asset ratio but also in a regulatory framework structuring its functioning. In a first part I concentrate on the structure. Interactions from risk sensitivity, technicality and delegation to banks of inputs' assessment raise two new challenges. First the high technicality of the current framework, with missing guidance for its implementation, can mislead bank's decision. Second delegated-control and risk sensitivity create a dilemma for banks that encourage them to understate their risk level. Moreover, risk sensitive requirements do not impact the rationale to entail regulatory arbitrages via securitisation process. In a second part I focus on risk sensitive requirements. I define a framework with higher risk / higher returns assets where a risk taking behaviour consists in a choice of a riskier asset. The analysis concludes the risk sensitivity does not prevent from the emergence of risk taking behaviour. The IRB risk weight function displays marginal and cyclical variations that impact bank's optimal risk level. My main result is a pro-cyclical effect in terms of asset's risk level: as the business cycle improves, the bank can exploit the freeing of regulatory capital (regulatory bonus) to foster its value towards the financing of a riskier asset; reverse happens for recession where the regulatory penalty restricts bank's optimal asset's risk level. This pro-cyclical effect is due to the cyclical dependence of risk sensitive requirements.