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. Anat Admati and Martin Hellwig argue that we can have a safer and healthier banking system without sacrificing any of its benefits, and at essentially no cost to society. They 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.
Anat Admati is the George G. C. Parker Professor of Finance and Economics at Stanford's Graduate School of Business. She serves on the FDIC Systemic Resolution Advisory Committee and has contributed to the Financial Times, Bloomberg News, and the New York Times. Martin Hellwig is director at the Max Planck Institute for Research on Collective Goods. He was the first chair of the Advisory Scientific Committee of the European Systemic Risk Board and the cowinner of the 2012 Max Planck Research Award for his work on financial regulation.
Table of Contents
Preface ixAcknowledgments xiii1The Emperors of Banking Have No Clothes 1PART I Borrowing, Banking, and Risk 152How Borrowing Magnifies Risk 173The Dark Side of Borrowing 324Is It Really "A Wonderful Life"? 465Banking Dominos 60PART II The Case for More Bank Equity 796What Can Be Done? 817Is Equity Expensive? 1008Paid to Gamble 1159Sweet Subsidies 12910Must Banks Borrow So Much? 148PART III Moving Forward 16711If Not Now, When? 16912The Politics of Banking 19213Other People's Money 208Notes 229References 337Index 363
What People are Saying About This
From the Publisher
"More than four years after the financial meltdown devastated the economy, our banking system remains resistant to reform and riddled with risk. The Bankers' New Clothes challenges us to question the status quo and to think anew about the transformative changes in banking that are needed to serve the public interest. This work should spur a long-overdue debate on real banking reform."Phil Angelides, chairman of the Financial Crisis Inquiry Commission
"With a knack for explaining complex concepts in a very straightforward fashion, Admati and Hellwig take readers on an immensely rewarding and often surprisingly amusing journey. Their brilliant book has much to offer everyone, from novices to experts."Stephen Ross, Massachusetts Institute of Technology
The Bankers New Clothes: What's Wrong with Banking and What to Do about It 5 out of 5based on
More than 1 year ago
I really enjoyed The Bankers' New Clothes. I am a professional stock portfolio manager, and had an informed opinion on how banks interact with financial markets, governments, and the public. However, Admati and Hellwig's book deepened my understanding in an intelligent and well-written manner such that my appreciation for the abuses of our banking system is much improved as a result of having read their book. The authors clearly were compelled to bring to the light of day the issues with our modern banking system and with the governmental regulatory bodies that "oversee" it.
The book begins with a basic understand of the dynamics of debt as it pertains to capital structures (using the example of a home mortgage). From this easy-to-understand base, we go through how high debt leverage and contagion caused the recent financial crisis, and how tax payers bailed out the banking system. That the pre-crisis system has been saved and perpetuated by bailouts is a huge public disservice, and Admati and Hellwig explain why. We learn about the symbiosis between bankers and politicians, and we learn the nuances that had set things up for disaster and that continue to do so.
The authors offer a common sense solution, albeit one that the financial system and politicians will fight against to the end of days. However, ultimately we should arrive at their prescription. We continue to have a super-fragile banking system, and the recent crisis did not lead to the revolution it should have. Perhaps with one more crisis the next generation will move us forward.
Kudos to Admati and Hellwig. They've done a huge public service by writing this enjoyable book. It's one of the best economics books I've read, and it should be more widely read and understood than it likely will be. I encourage you to read it, not to mention to send a copy to your congressman. I can't say enough for Admati and Hellwig here.