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We investigate how Brazilian banks react to capital constraints and monitoring assessments placed by the financial authority. In order to do that, we use empirical models that incorporate the endogenous decision making process on the bank capital structure and risk taking. Our results suggest that the regulatory and supervisory pressures increase the institutions risk aversion by inducing banks to take greater positive adjustments in capital levels and smaller in portfolio risk levels. Moreover our findings show positive coordination between these variables, which is most pronounced in less capitalized banks, indicating a more active capital management by those close to the regulatory capital limit. The overall results support the capital buffer theory.