behavior and risk sensitivity of a risk-neutral bank. The bank is exposed to credit risk and may use credit default swaps (CDS …) for hedging purposes. Regulation is found to induce the risk-neutral bank to behave in a more risk-sensitive way: Compared …. Under the Substitution Approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total …

and interbank rate risk on the optimaldecisions on deposits and loans of a competitive bank. It is found that dueto the … bank's behavior.Moreover, it is shown that there is an interaction between the effects of theintroduction of risk and … economies or diseconomies of scope in the bank?sbusiness which determines the extend of behavioral changes. …