princeton.edu /#preview – bankersnewclothes.com/contents, excerpts, reviews – amazon.co.uk – goodreads.com 2013/2024 The Bankers’ New Clothes: What’s Wrong with Banking and What to do about it – by Anat Admati, Martin Hellwig
New bank failures have been a rude awakening for everyone who believed that the banking industry was reformed after the Global Financial Crisis—and that we’d never again have to choose between massive bailouts and financial havoc. The Bankers’ New Clothes uncovers just how little things have changed—and why banks are still so dangerous. Writing in clear language that anyone can understand, Anat Admati and Martin Hellwig debunk the false and misleading claims of bankers, regulators, politicians, academics, and others who oppose effective reform, and they explain how the banking system can be made safer and healthier. Thoroughly updated for a world where bank failures have made a dramatic return, this acclaimed and important book now features a new preface and four new chapters that expose the shortcomings of current policies and reveal how the dominance of banking even presents dangers to the rule of law and democracy itself.
reviews -editorial
“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
“Providing a sound analysis of the role of banking and its regulation in the public interest, The Bankers’ New Clothes is free of technical jargon and widely accessible to all policymakers and all who are concerned about banking’s future, which is virtually everybody. The book’s clear exposition conveys a deep understanding of the pervasive place of banking in the economy and stands in opposition to the self-interested forces of obscurity.”–Kenneth J. Arrow, Nobel Laureate in Economics
“The Bankers’ New Clothes underscores that there is perhaps no reform more important and central to a stable financial system than capping the ability of financial institutions to take excessive risks using other people’s money.”–Sheila C. Bair, author of Bull by the Horns and former chairperson of the U.S. Federal Deposit Insurance Corporation (FDIC)
“The Bankers’ New Clothes accomplishes the near impossible by translating the arcane world of banking regulation into plain English. In doing so, it exposes as false the self-serving arguments against meaningful financial reform advanced by Wall Street executives and the captured politicians who serve their interests. This revelatory must-read shreds bankers’ scare tactics while offering commonsense reforms that would protect the general public from unending cycles of boom, bust, and bailout.”–Neil Barofsky, author of Bailout
“Anyone interested in the past, present, or future of banking and financial crises should read The Bankers’ New Clothes. Admati and Hellwig provide a forceful and accessible analysis of the recent financial crisis and offer proposals to prevent future financial failures. While controversial, these proposals–whether you agree or disagree with them–will force you to think through the problems and solutions.”–Michael J. Boskin, former chairman of the President’s Council of Economic Advisers
“With extraordinary clarity, Admati and Hellwig explain why the banking system is reckless and distorted, what can be done to tame it, and how the politics of banking has failed the public. A must-read for all, The Bankers’ New Clothes educates and empowers citizens to demand a better system and tells policymakers how to deliver it.”–Jeff Connaughton, author of The Payoff: Why Wall Street Always Wins
“This entertaining book is an accessible exposé of the myths that financial firms use to perpetuate the advantages they get from government guaranties of their debt. A must-read for concerned citizens, The Bankers’ New Clothes should be studied and memorized by lawmakers and regulators so they won’t be duped by these false claims in the future.”–Eugene F. Fama, University of Chicago
“Bankers have sold us a story that their risky practices are the necessary cost of a dynamic system. Admati and Hellwig expose this as a misguided and dangerous lie, and show how banks can be made more stable–if less profitable for the bankers themselves–without sacrificing economic growth. This brilliant book demystifies banking for everyone and explains what is really going on. Investors, policymakers, and all citizens owe it to themselves to listen.”–Simon Johnson, coauthor of 13 Bankers
“At last! Two eminent economists explain in plain English what is wrong with banks and what needs to be done to make them safer.”–Mervyn King, governor of the Bank of England
reviews
ft.com 2017 Why bankers are intellectually naked – by Martin Wolf
ideas.repec.org 2016 Review by Ikeo, Kazuhito
researchgate.net – gg/pdf 2015 Review_of_Bankers_New_Clothes – by Michael A. H. Dempster
european-economy.eu – pdf 2015 The Bank Capital Controversy – by Jean-Charles Rochet
pure.ed.ac.uk/pdf 2015 Book review by Fernando Moreira
…”The greatest merit of this book is its explanation, in very accessible language, of fallacies concerning the capital that banks should have in order to avoid bankruptcy. One does not need to have a university degree to understand the authors’ arguments. One just needs to keep an open mind and to realise that not everything that is said by bankers, academics and politicians is necessarily true. I worked at a Central Bank for a number of years and I have been teaching and doing research on banking regulation at other times but I confess that I never assumed that this issue could be explained in such simple terms as Admati and Hellwig have admirably done in their book.”…
sagepub.com 2014 Book review: Anat Admati, Martin Hellwig, The Bankers’ New Clothes and John Coates, The Hour between the Dog and the Wolf – review by Jocelyn Pixley
johnhcochrane.blogspot.com 2013 – Book review by John Cochrane
…”Bottom line: Banks should issue a lot more equity, a lot less debt, especially short term debt, and a heck of a lot less nonsense.
…. Foreseeing the usual risk-weighting games, Basel III requires a backstop 3% ratio of equity to all assets. “If this number looks outrageously low,” Ms. Admati and Mr. Hellwig write, “it is because the number is outrageously low.” Indeed. This simple truth has been met by howls of protest and layers of obfuscation and derision by bankers, their consultants and many of their regulators. “Oh, you just don’t understand the complexities of banking” is the basic attitude. “Go away and let the experts fix this.” Well, Ms. Admati and Mr. Hellwig, top-notch academic financial economists, do understand the complexities of banking, and they helpfully slice through the bankers’ self-serving nonsense. Demolishing these fallacies is the central point of “The Bankers’ New Clothes.” No, they write, it was not always thus. In the 19th century, banks funded themselves with 40% to 50% capital. Depositors wouldn’t lend to banks unless the banks had a lot of skin in the game. Without a government debt guarantee—and, early on, without limited liability—shareholders wanted less risk as well. “Capital” is not “reserves,” and requiring more capital does not reduce funds available for lending. Capital is a source of money, not a use of money. When, as Ms. Admati and Mr. Hellwig gleefully note, the British Bankers’ Association complained in 2010 about regulations that would require banks to “hold”—the wrong verb—”an extra $600 billion of capital that might otherwise have been deployed as loans to businesses or households,” it made an argument both “nonsensical and false,” contradicting basic facts of a bank balance sheet. Requiring more capital does not require banks to raise one cent more money in order to make a loan. For every extra dollar of stock the bank must issue, it need borrow one dollar less…
newstatesman.com 2013 The Bankers’ New Clothes by Anat Admati and Martin Hellwig – Profits of doom. Review By Will Hutton
kevindavis.com/pdf 2013 Review by Kevin Davis
This polemical book has one key message ‐ banks should be required to operate with a much higher proportion of equity financing relative to debt and deposits. And that message applies even after allowing for the higher minimum capital requirements being gradually implemented worldwide under Basel 3 regulations. Of course, the book does more than make that single argument. In particular, it stresses the political economy nature of the process by which banking regulation evolves, and focuses upon a number of fallacious arguments, rhetoric, and tactics used by bankers to prevent regulatory change of the sort advocated by the authors. Hence the title of “The Banker’s New Clothes”. Naked self‐interest and logical inconsistencies in banker opposition to regulatory change is hidden from the general populace by the mystique associated with banking, and which the authors aim to strip away. Such a book would be controversial even in normal times, but is particularly timely given the (still) recent financial and economic disruption of the global financial crisis which the authors argue (correctly in my view) demonstrated the faults of a financial system built upon highly levered banks. And while regulators have responded to that experience with increased capital requirements (and other measures), they are too little and implementation is too slow (facilitating “pushback” by bankers). As the authors also argue, those changes are perpetuating the illusion of scientific fine tuning given by complexity and reliance on internal risk modelling by large banks in the Basel regulatory approach, which an increasing number of researchers are sceptical of. The authors are (rightly) scathing of the commonly heard arguments which claim that the cost of “holding” more capital is costly for banks and threatens lending, and thus, economic growth. …
rivisteweb.it – pdf 2014 Review by Simone Polillo
bsi-economics.org 2013 Review by Mathieu Perona
…Bankers’ New Clothes is a useful book in that it makes clearly the case for higher equity requirements for banks. This does seem a much sensible path than separating ill-defined activities. – The book does however fail to account for the difference between US and EU financial systems. As a consequence, significant costs of higher equity requirements are overlooked. The criticism of risk-weighted assets is unconvincing…
aeaweb.org 2013 Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig’s The Bankers’ New Clothes – by Roger B. Myerson
Abstract – In an important new book, Anat Admati and Martin Hellwig raise broad critical questions about bank regulation. These questions are reviewed and discussed here, with a focus on how the problems of maintaining a stable financial system depend on fundamental problems of information and incentives in financial intermediation. It is argued that financial regulatory reforms can be reliably effective only when their basic principles are understood by informed citizens, and that 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.
wsj.com 2013 Running on Empty – Banks should raise more capital, carry less debt—and never need a bailout again – By John H. Cochrane
Four and a half years ago, the large commercial banks nearly failed, inaugurating our great recession. They were saved by the Troubled Asset Relief Program, Federal Reserve lending and other government support. If you think all that was bad, imagine the ATMs going dark. What has been done to avoid a repetition of these events? Sadly, and despite all the noise you hear about bank regulation, not much…
articles
fed/reseve/pdf 2-2024 Comments Re: Regulatory Capital Rule: Large Banking Organizations and Banking Organizations with Significant Trading Activity – letter by Anat Admatito Fed etal
gsb/stanford/pdf – gg/pdf – 1-2024 The Parade of the Bankers’ New Clothes Continues: 44 Flawed Claims Debunked – by Anat Admati, Martin Hellwig
Abstract – The debate on banking regulation has been dominated by flawed and misleading claims. Such claims provided the basis for poorly designed rules. Despite experiences like the 2007-2009 financial crisis, the rules have not been changed much, and the financial system has remained unconscionably fragile. The fragility was in evidence in the spring of 2023, and it persists today. In our book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, first published in 2013, we discussed many flawed claims and reviewed their significance in the context of the 2007-2009 financial crisis. A new and much expanded edition, including developments until May 2023, is coming out in early 2024. Bankers, policymakers, academics, and others have continued to make the same flawed claims we debunked in our book, and some new ones, including in current policy debates. This document provides an overview of flawed claims with brief rebuttals and references to more detailed arguments. The first version of this document, put out in 2013, discussed 23 flawed claims; this new version includes 44 flawed claims. The persistence of flawed claims and poorly designed and inadequate rules reflects the politics of banking. Public debate should be based on the principle that it matters whether something is true or not. To ensure that it matters in public debate whether something is true or not, enough people must overcome the temptation to be willfully blind to truth.
cambridge.org 1-2020 The Missed Opportunity and Challenge of Capital Regulation – Anat R. Admati
Abstract – Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives for recklessness. The approaches to capital regulation in Basel III and related proposals are based on flawed analyses of the relevant tradeoffs. The flaws in the regulations include dangerously low equity levels, a complex and problematic system of risk weights that exacerbates systemic risk and adds distortions, and unnecessary reliance on poor equity substitutes. The underlying problem is a breakdown of governance and lack of accountability to the public throughout the system, including policymakers and economists.
videos
youtube 2021 anti-library intro/review
vimeo.com 2016 The Bankers’ New Clothes – Intro by Anat Admati & Martin Hellwig
youtube.tedx 2015 Seeing through “the banker’s new clothes”: Anat Admati
youtube.com 2013 Adam S. Posen introduces Anat Admati and Martin Hellwig,
events
OxfordLitFestival 23-3-2024 The Bankers’ New Clothes: What’s Wrong with Banking and What to do about it – Anat Admati and Martin Hellwig – chaired by Martin Wolf
Stanford business school professor Anat Admati and former chair of the German Monopolies Commission Martin Hellwig discuss the new and expanded version of their seminal work on the 2008 financial crisis and explain how so little has changed in the aftermath.Admati and Hellwig say new bank failures have been a rude awakening for those who thought the banking industry had been reformed after the global financial crisis. They argue that banks are still dangerous and how they even present a danger to the rule of law and democracy. they debunk the arguments of bankers, regulators, politicians, academics and others who oppose reform, and they explain how the banking system can be made much healthier and much safer.‘In a year of important books about the recent economic crisis, the most important one told us simply how to stop the next one.’ Wall Street JournalAdmati is a professor at the Stanford Graduate School of Business. She has written for the New York Times and Financial Times and is recognised as a global thinker. Hellwig is director emeritus at the Max Planck Institute for Research on Collective Goods in Bonn and former chair of the German Monopolies Commission and the Advisory Scientific Committee of the European Systemic Risk Board.Discussions are chaired by the Financial Times chief economics commentator Martin Wolf, author of The Crisis of Democratic Capitalism.
see also