The Bankers' New Clothes : What's Wrong with Banking and What to Do About It - Updated Edition

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. 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--provided By Publisher. The Emperors Of Banking Have No Clothes -- How Borrowing Magnifies Risk -- The Dark Side Of Borrowing -- Is It Really A Wonderful Life? -- Banking Dominos -- What Can Be Done? -- Is Equity Expensive? -- Paid To Gamble -- Sweet Subsidies -- Must Banks Borrow So Much? -- If Not Now, When? -- The Politics Of Banking -- Other People's Money. Anat Admati And Martin Hellwig. Includes Bibliographical References And Index. "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"--Résumé de l'éditeur Why our banking system is broken—and the reforms needed to fix it 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. Why our banking system is broken—and what we must do to fix it As memories of the Global Financial Crisis have faded, it has been tempting to believe that the banking system is now safe and that we will never again have to choose between havoc and massive bailouts. But The Bankers' New Clothes shows that reforms have changed little—and that the banks still present serious dangers to the world economy. Writing in clear language anyone can understand, Anat Admati and Martin Hellwig explain how we can have a healthier banking system without sacrificing any benefits. They also debunk the false and misleading narratives of bankers, regulators, politicians, academics, and others who oppose real reform. Cover 1 Title 4 Copyright 5 Dedication 6 CONTENTS 8 Preface to the Paperback Edition 10 Preface 14 Acknowledgments 18 1 The Emperors of Banking Have No Clothes 24 PART I Borrowing, Banking, and Risk 38 2 How Borrowing Magnifies Risk 40 3 The Dark Side of Borrowing 55 4 Is It Really “A Wonderful Life”? 69 5 Banking Dominos 83 PART II The Case for More Bank Equity 102 6 What Can Be Done? 104 7 Is Equity Expensive? 123 8 Paid to Gamble 138 9 Sweet Subsidies 152 10 Must Banks Borrow So Much? 171 PART III Moving Forward 190 11 If Not Now, When? 192 12 The Politics of Banking 215 13 Other People’s Money 231 Notes 252 References 360 Index 386 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. This title examines the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid.