We analyze the impact of the new Internal Rate Based (irb) Basel II capital requirements on the credit portfolio of banks and on their incentive to take risk. We show that for some initially risky banks, there is an incentive bias to finance a riskier credit bucket when they shift from Basel I...

We analyse the determinants of bank balance-sheets and leverage-ratio dynamics, and their role in increasing financial fragility. Our results are twofold. First, we show that there is a value of bank leverage that minimises financial fragility. Second, we show that this value depends on the...

In The Trade Cycle, Roy Harrod [1936a] propounded the Law of Diminishing Elasticity of Demand. The present paper tries to clarify the precise role Harrod assigned to this law in order to understand his trade cycle theory. We discuss the micro and macro foundations of the Law of Diminishing...