Anat R. Admati and Martin Hellwig: The Bankers’ New Clothes—What’s Wrong with Banking and What to Do About It
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The recent financial crisis and its significant costs for the economy have reignited the issue of stricter banking regulation. However, many view the reforms proposed to date as insufficient for stabilizing the system. In their book The Bankers’ New Clothes—What’s Wrong with Banking and What to Do About It, Anat R. Admati and Martin Hellwig explain the misconceptions underlying today’s banking system. The authors criticize claims commonly made by its proponents and construct a simple case for more bank equity. The book comprises an introduction, three chapters, and an extensive notes section.
The introduction points to the fundamental conflict between what is good for bankers and what is good for the economy. Banks currently rely on equity as low as 3 % of total assets, enabled by government subsidies and bailout guarantees, and considerably lower than in other industries. Ironically, banks would not accept such equity levels from their own borrowers.
The first chapter explains the...