The Bankers' New Clothes: What's Wrong with Banking and What to Do about Itby Anat Admati, Martin F. Hellwig
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/i>… See more details below
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.
"The Bankers' New Clothes is a lucid exposition of the intellectual falsehoods deployed by banks to justify the ways in which they went about growing their business beyond any reasonable assessment of risk in the run-up of the crisis of 2008 and which they continue to peddle today. Admati and Hellwig cut through the debates about whether it was too little or too much regulation that was to blame, whether central banks could and should have acted faster, and the rights and wrongs of securitisation or separating commercial and investment banking, and go to the heart of the matter."--Will Hutton, New Statesman
"[T]hought provoking."--Heather Stewart, Observer
"[Admati's and Hellwig's] case that the banking industry still needs a shake-up is persuasive. And you have to admire their nerve in tackling the lobby head-on because, like the emperor in the Hans Christian Andersen fairytale, it wears a smokescreen of competence and confidence. Attacking the illusion takes courage."--David Wilson, South China Morning Post
"A clear and detailed call for banking reform. Arguing that the system is no safer today than before the financial crisis, the authors reject some bankers' and politicians' fears that further regulations would be too expensive and instead call for extensive change. Their starting place: Make banks responsible for their own mistakes."--Worth
"One of the greatest strengths of this book is that it clearly explains the issues for the ordinary reader. Financial reform shouldn't be left solely to Wall Street bankers and their captured policymakers in Washington, D.C., to decide. Regular citizens must make their voices heard, and this book will help them understand the basic terminology and concepts. I encourage everyone with an interest in effective financial reform to pick up a copy today. This just might be the most important book of 2013."--John Reeves, Motley Fool
"Offering a unique insight into banking from both an insider's and layman's perspectives, The Bankers' New Clothes is a welcome source of information in these unstable times."--Noori Passela, The National
"The Bankers' New Clothes . . . is critical and refreshing. Anat Admati and Martin Hellwig are a formidable pair and systematically demolish all the bankers' arguments on risk, capital buffers, reserve requirements and the claims that no further reforms are required."--Hazel Henderson, Seeking Alpha
"Admati and Hellwig walk banking neophytes slowly through how banking works, framing examples in a way that most people can understand: borrowing on a home. In very simple terms the authors explain how excess leverage is dangerous. Ironically, bankers are quick to point this out when examining someone else's credit prospects but not necessarily their own."--Douglas French, Freeman
"[T]he banks' argument that equity capital is expensive and that increasing equity capital would force them to pass up otherwise attractive lending opportunities has been systematically demolished, most notably by the academics Anat Admati and Martin Hellwig. In a new book they argue . . . that both the equity and debt of well capitalised banks are safer and thus cheaper, while a lower return is perfectly acceptable to investors in exchange for lower risk."--John Plender, Financial Times
"Since the 2008 financial crisis, there has been a continuing conversation on large banks and the idea of institutions that are 'too big to fail (TBTF).' Anat Admati and Martin Hellwig have provided a valuable contribution to the debate in their new book, The Bankers' New Clothes. . . . This is a timely and interesting book and one that is squarely in the middle of the debate over the future of the nation's largest banks."--Christopher Whalen, National Interest
"I've read almost all the major books on the financial crisis, and what makes this one of the best, if not the very best, is its simplicity and accessibility."--Emre Deliveli, Hurriyet Daily News
"The book pounds quite the drumbeat here: Force banks to borrow less (they should make up the difference through issuing more equity stock) and so inject sanity into the system."--Katharine Whittemore, Boston Globe
"In simple and accessible terms, the authors show convincingly that banks are as fragile and destructive as they are, not because they must be, but because they want to be--and they get away with it."--Shanghai Daily
"The Bankers' New Clothes . . . stands out from the crowd. For one, it does not beat around the bush--it is clear and straight to the point in an industry usually heaving with jargon. By using language the man on the street can understand, this bold book leads quite literally by example as it reveals insights into the banking industry and why it is in such a mess."--Nina Roehrbein, Investment & Pensions Europe
"This is the most important book to have come out of the financial crisis. It argues, convincingly, that the problem with banks is that they operate with an order of magnitude too little equity capital, relative to their assets. Targeting return on equity, without consideration of risk, allows bankers to pay themselves egregiously, while making their institutions and the economy hugely unstable."--Financial Times, "Books of the Year So Far" Summer Reading Guide
"The book deserves to be read by both bankers and policymakers as it debunks many of the myths that have been used to justify excessive leverage in banking."--Economic & Political Weekly
"This excellent volume provides an invaluable lens through which to view modern banking and the ways it has evolved to privatize returns and socialize risks. . . . Admati and Hellwig provide an accessible explanation of the inherent risks in the current banking system and propose sensible rules and reforms to make the system stable without damaging bank lending or economic growth."--Choice
"This accessible look into complex financial theory is a must-read for anyone interested in the ongoing debate over regulatory reform and 'too big to fail.'"--Jeanine Skowronski, Deputy Editor, BankThink
"[The] Bankers' New Clothes makes a powerful case for why banks should stop borrowing so much."--Rana Foroohar, Time
"[B]uy this book; read this book; give this book to your friends; discuss this book; act on this book."--Carol Hunt, Irish Sunday Independent
"The book is terrific."--Enlightened Economist
"[T]he Bankers' New Clothes is an important book that identifies correctly the central problem of government protection of banks."--Charles Calomiris, Barron's
"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."--World Book Industry
"Admati and Hellwig have given us a clear roadmap to sensible banking reform but, given the hold that key banking interests have over politicians in most major economies, little change in either policy or attitude towards essential bank functions can be expected any time soon."--Joel Campbell, International Affairs
"Admati and Hellwig's book is a major contribution toward this goal, as it clearly lays out the essential case for requiring banks to have more equity. . . . Anat Admati and Martin Hellwig have done an enormously important service in this book."--Roger B. Myerson, Journal of Economic Literature
Maybe regulators will finally listen to Admati and Hellwig after the next financial crisis.
[I]n a new book explaining what really happened at Bretton Woods, Benn Steil shows that what happened in the mountains of New Hampshire that summer is not quite the story we have been told.
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