The Bankers’ New Clothes
By Anat R. Admati, Martin F. Hellwig. 2014
425 citations recorded by the source corpus.
What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid. Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned. Admati and Hellwig seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms. The Bankers' New Clothes calls for ambitious reform and outlines specific and highly beneficial steps that can be taken immediately.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/84ac58113f09f18c72e654f03a233bb545e531ce
How researchers see this paper
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In Economics and Econometrics
In Finance
- Sanjai Bhagat
- Anjan V. Thakor
- René M. Stulz
- Brian J. Bolton
- H. DeAngelo
- Jarrad Harford
- Nihat Aktas
- Thorsten Beck
Citations in the corpus
- Financial crisis and bank executive incentive compensation (2014, result): “Our recommendation for significantly greater equity in a bank's capital structure is consistent with the recent recommendations of Admati and Hellwig (2013) and Fama (2010).”
- Why High Leverage is Optimal for Banks (2013, positive): “Admati and Hellwig (2013), building on Miller (1995), Pfleiderer (2010), and Admati, DeMarzo, Hellwig, and Pfleiderer (2011), use this capital structure model to argue for severe regulatory limits on bank leverage. As Myerson (2013, p. 3) discusses, MM’s leverage irrelevance theorem is the foundatio”
- Bank Capital and Financial Stability: An Economic Trade-Off or a Faustian Bargain? (2014, background): “However, Admati & Hellwig (2013) point out an inconsistency between these two sets of theories.”
- Capital Regulation in a Macroeconomic Model with Three Layers of Default (2014, neutral): “However, our model would not support higher capital ratios, such as the value of 25 percent recently suggested by Admati and Hellwig (2013). In our model, too-high capital requirements would excessively restrict credit availability while reducing default rates only marginally, resulting in a net wel”