THE BANKERS NEW CLOTHES: WHATS WRONG WITH BANKING AND WHAT TO DO ABOUT IT PDF, EPUB, EBOOK

Anat R. Admati,Martin Hellwig | 424 pages | 01 Apr 2014 | Princeton University Press | 9780691162386 | English | New Jersey, United States The Bankers' New Clothes | Princeton University Press

Javascript is not enabled in your browser. Enabling JavaScript in your browser will allow you to experience all the features of our site. Learn how to enable JavaScript on your browser. Two eminent economists explain in plain English what is wrong with banks and what needs to be done to make them safer. Home 1 Books 2. Add to Wishlist. Sign in to Purchase Instantly. Here, they aim to demystify banking and expand the range of voices in the debate; encouraging people to form opinions and express doubts will ensure a healthier financial system as people understand the issues and influence policy. The authors push for aggressive reform by outlining specific steps that can be taken to change our banking system for the better. Donlan, Barron's, Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. The value of The Bankers' New Clothes is that it sets all out in clear and accessible terms over little more than pages, without cutting corners. 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. Fama, University of Chicago, "Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. With its clear explanations, many examples, and analogies, the book is accessible to readers who do not have business backgrounds and who want to better understand banking. Louis Post-Dispatch, Admati and Hellwig have done something extraordinary. They took [banking] frustration and all its complex details and gave it a simple narrative, one that both explains what banks have been getting away with and what we might ask that Congress do about it. Louis Post-Dispatch, "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. 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. Arrow, Nobel Laureate in Economics, "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. Talbott, Huffington Post, [P]owerful. Bair, author of Bull by the Horns and former chairperson of the U. Louis Post-Dispatch, "[B]uy this book; read this book; give this book to your friends; discuss this book; act on this book. Datar, The Hindu, The Bankers' New Clothes is wowing critics of fragile banks with a simple and attractive message: Force banks to have much thicker cushions of capital and you can make them safer without paying any cost in terms of higher interest rates, less lending, or lower economic growth. Datar, The Hindu, "Admati and Hellwig are on a mission to teach citizens, policymakers, and academic economists about the principles of sound banking practice and regulation, as well as the pitfalls and immense social costs of failing to abide by those principles. Much economic pain--such as the U. 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. Legislation has not removed too-big-to-fail financial policies, continuing the mistake of making innocent citizens responsible for bankers' errors. The Bankers' New Clothes makes the case for increased equity capital and answers bankers' arguments. 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. With direct and rigorous analysis, Admati and Hellwig lay bare the ongoing misinformation about modern banks, and show what remains wrong with banking. This book is the voice shouting that the bankers are still not wearing any clothes. We should listen. This book should be required reading for bank regulators, bankers, and legislators; it should also do a lot to demystify banking for the concerned public. It is beautifully written and forcefully argued. It took courage, a deep understanding of banking and finance, and first-rate expository skills to write. Talbott, Huffington Post, Since the financial crisis, there has been a continuing conversation on large banks and the idea of institutions that are 'too big to fail TBTF. Donlan, Barron's, Professor and journalist Admati and economic researcher Hellwig argue that it is possible to have a well-balanced banking system without any cost to society; weak regulations and lax enforcement is what caused the buildup of risk unleashed in the crisis. Their brilliant book has much to offer everyone, from novices to experts. Show More Show Less. Add to Cart. Any Condition Any Condition. See all 20 - All listings for this product. No ratings or reviews yet No ratings or reviews yet. Be the first to write a review. Best Selling in Nonfiction See all. Bill o'Reilly's Killing Ser. When Women Pray Hardcover T. Jakes Christian Inspirational No ratings or reviews yet. Save on Nonfiction Trending price is based on prices over last 90 days. You may also like. Paperback Books Revised Edition. And they do a great job. Admati and Hellwig have made a gift to you. You don't have to go wrestle with banks' financial statements or their annual reports or their 10Q's. You don't need to pull out your old accounting textbooks or call your college economics teacher to have her explain to you again why debt leverage increases risk. Admati and Hellwig have done all the hard work for you. But, you have to read their book. Talbott, Huffington Post. But in their new book, Admati and Hellwig make a forceful case for a classic and simple solution to excessive, unregulated lending: higher capital ratios for banks. The real strength of their book is that they walk their readers through the balance sheet and to a regulatory answer to the banking problem, an answer that's elegant in its simplicity and far-reaching in its potential to prevent and manage financial crises. The authors, Anat Admati and Martin Hellwig draw upon accounts of the crisis and come up with some clear prescriptions based on what they see as the biggest problem— that banks are over-leveraged. The value of The Bankers' New Clothes is that it sets all out in clear and accessible terms over little more than pages, without cutting corners. Perhaps, then, policy-makers will start to feel pressure for smarter change. But Anat Admati, a finance professor at Stanford University, and Martin Hellwig, a director at the Max Planck Institute for Research on Collective Goods, have done an admirable job in explaining how capital in the banking system works to absorb shocks, and how too little of it makes banks unstable. But it can be read by anyone interested in banking— bankers, policy makers and researchers. Admati and Hellwig take a lot of time to clearly explain the problems with depending too much on borrowed money. Louis Post-Dispatch. 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. 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. 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. Financial reform shouldn't be left solely to Wall Street bankers and their captured policymakers in Washington, D. 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 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. 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. In a new book they argue. 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. 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. 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. NPR Choice page

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. 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. In a new book they argue. 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. 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. 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. 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. It is entirely persuasive that the extent of their leverage makes the financial system fragile, and it clearly and patiently demolishes all the counter-arguments made by the banks and their lobbyists. The book's discussions about the weakness of free markets and capitalism make it highly relevant to readers of this weekly. It also sheds light on the role of government and the elites in the formation of regulatory policies. Admati and Hellwig identify low equity of banks as single most important cause of the crisis. Datar, The Hindu. 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. 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. Arrow, Nobel Laureate in Economics. Bair, author of Bull by the Horns and former chairperson of the U. 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. 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. Boskin, former chairman of the President's Council of Economic Advisers. 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. 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. Fama, University of Chicago. 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. Two eminent economists explain in plain English what is wrong with banks and what needs to be done to make them safer. Legislation has not removed too-big-to-fail financial policies, continuing the mistake of making innocent citizens responsible for bankers' errors. The Bankers' New Clothes makes the case for increased equity capital and answers bankers' arguments. With direct and rigorous analysis, Admati and Hellwig lay bare the ongoing misinformation about modern banks, and show what remains wrong with banking. This book is the voice shouting that the bankers are still not wearing any clothes. We should listen. It argues that as long as implicit taxpayer guarantees incentivize banks to raise funds almost exclusively through issuing debt, the global financial system will be subject to periodic destructive crises. The most effective remedy is to force banks to strike a better balance between debt and equity, but there have been many obstacles to implementing this improvement. Future efforts to regulate the financial system should start here. Their brilliant book has much to offer everyone, from novices to experts. Much economic pain—such as the U. The Bankers' New Clothes explains in plain language why banking reform is still incomplete, contrary to what lobbyists, politicians, and even some regulators tell us. Federal Reserve and the U. Economic Recovery Advisory Board. This book should be required reading for bank regulators, bankers, and legislators; it should also do a lot to demystify banking for the concerned public. It is beautifully written and forcefully argued. It took courage, a deep understanding of banking and finance, and first-rate expository skills to write. Listen to our first episode. Illus: 6 line illus. Overview Author s Reviews Anat Admati is the George G. Be the first to ask a question about The Bankers' New Clothes. Lists with This Book. Community Reviews. Showing Average rating 3. Rating details. More filters. Sort order. Mar 25, Breakingviews rated it really liked it. By George Hay How much capital do banks need? Ask the Basel Committee of global banking supervisors, and it will recommend 3 percent of total bank assets. Bankers greet this kind of talk with a bemused shake of the head. Hiking capital, they claim, will just mean cutting the By George Hay How much capital do banks need? Hiking capital, they claim, will just mean cutting the amount of lending in the economy by a proportionate amount. Super-high capital ratios would slash returns on equity to such an extent that banks would struggle to attract new private-sector investors to help increase lending. Ask anyone in the City and they will repeat, as if in a trance, that equity is expensive and pushes up the cost of providing credit. Admati and Hellwig tackle this argument head on. It helps to fund assets - or loans - rather than sitting unused in a box. Banks with more equity can do more lending, not less. But any bank maintaining a 30 percent capital ratio will be significantly safer, which means that the cost of that equity should also come down. More loss-absorbing capital should also make it less likely that taxpayers will have to bail banks out. The cynical view is that bankers have an incentive to keep capital levels low - less capital means higher returns on equity, and bigger bonuses. They spend plenty of money trying to convince politicians and the general public that equity is expensive. But the argument for dramatic increases in equity faces a more fundamental problem. Banks are not necessarily subject to the normal dynamic, whereby debt becomes more costly as banks become more leveraged - and therefore more risky. Instead, taxpayer subsidies that mean big banks are bailed out in a crisis give them an incentive to borrow as much as possible. Adding more equity reduces the proportion of their loans that can be financed with artificially cheap debt. Even if the system enables cheaper loans, it also means bank shareholders and employees are protected from facing the consequences of their risky behaviour: taxpayers - the rich aunties - are on the hook. They are like a chemical firm carping about the cost of insuring against potential losses from toxic spillages it has itself caused. The problem is how to get the banking firmament from where it is now to where Admati and Hellwig think it needs to be. But the sad truth is that when confronted with a choice between a freestanding banking system and one which periodically blows up but enables artificially low borrowing rates, politicians will tend to choose the latter. That means low bank equity - and overpaid bankers - could be around for a while yet. Mar 23, Ian Robertson rated it it was amazing. Many books have tried to explain the origins of the financial crisis, and many more have offered advice to prevent a recurrence. An outstanding book that should be read by everyone: politicians, regulators, bankers, and those with an interest in a stable financial system i. There [has been] no serious analysis of how the financial system might be made safer. But this situation can change. With the right focus and a proper diagnosis of the problems, highly beneficial steps can be taken immediately. They also expose the repeated obfuscation of banks and lobbyists, highlight the complicity of politicians, and on occasion correct misinformation promulgated by individuals who should know better former Federal Reserve Governor Frederic Mishkin. They start with an example everyone will understand - a home mortgage - and link it to the gain or loss the homeowner would experience if their home rose or fell in value over the course of a year. Their prescription: issue equity immediately or stop dividend payments i. Written for a general audience, the book explains issues and industry terminology very well, features outstanding examples and analogies, and concludes with specific remedies and an estimate of associated costs. As an added bonus the book features an unparalleled notes section, which at over pages is a worthy read in itself. A truly outstanding effort. Feb 15, Richard Thompson rated it liked it Shelves: economics-and-business. This book drives home one simple idea again and again for over two hundred pages -- the banking system would be safer if minimum equity requirements of banks were to be increased. They reject other proposed solutions to the current fragility of the banking system as being too complex or too easily evaded and reject a variety of arguments that have been put forth as to why an increase in equity requirements would be hard to achieve or better put off to a later time or would have negative effects This book drives home one simple idea again and again for over two hundred pages -- the banking system would be safer if minimum equity requirements of banks were to be increased. They reject other proposed solutions to the current fragility of the banking system as being too complex or too easily evaded and reject a variety of arguments that have been put forth as to why an increase in equity requirements would be hard to achieve or better put off to a later time or would have negative effects on the banking system. They show how the explicit subsidy of deposit insurance and the implicit subsidy of the willingness to rescue banks that are "too big to fail" adds to the problem by giving banks incentives to load on as much debt as possible at the expense of equity. This book hugely oversimplifies the problems that the banking system faces, but that is not necessarily a bad thing, because sometimes complexity obscures simple solutions as was the case with the famous Gordian knot. An increase in bank equity positions probably won't be the cure-all that the authors claim that it will be, and I don't think that implementing it will be as painless as they claim, but they did convince me that it can be implemented relatively painlessly and in simple terms that make evasion difficult and that it is likely to do more to bring greater stability to the system than anything else that has been proposed. Because bank reform requires political action, the simplicity of the solution proposed in this book has a huge advantage -- it can be described and advocated in a few words, it can be sloganized, and a substantial portion of the electorate will be able to more or less understand it. The authors hint at other reforms that might be worth considering, such as breaking up the bigger banks into smaller businesses that are no longer too big to fail, or finding ways to make people who are part of the problem, such as managers and holders of junior debt or senior equity, bear more of the consequences when failures inevitably happen, but they don't really delve into those things because of their laser focus on the program of increasing equity requirements. There is one other major problem area that the authors barely mention -- the banks' huge trading positions in derivatives. They do say at one point that one proposed solution is to return to Glass-Stegall and make banks go back to the core business of taking deposits and making loans against them, but they reject that approach by saying that banks failed even when they were in that business, which is true, but the risk of that kind of failure has been largely fixed by the deposit insurance system. Speculation in derivatives creates a new kind of risk that is exponentially greater. This is something that is directly relevant to the authors' discussion of how big the equity requirements should be, so I was sorry that they did not discuss it, but I understand that their point was to describe a simple solution to what they describe as a simple problem and to sweep aside all of the complexities as being nothing more than attempts to obscure the real issues. So I forgive the authors for glossing over this problem, but I would have liked to see a more in depth discussion of how derivatives fit into the picture. Maybe they can write another book that deals with that part of the equation. Jul 01, Anna rated it really liked it Shelves: economics , politics , nonfiction. I thus found 'The Bankers New Clothes' rather slow at first, as it goes over familiar ground without the edge of exciting reportage Fool's Gold or intense rage Freefall: Free Markets and the Sinking of the Global Economy. The analogous mortgage examples get a bit repetitive and are somewhat US-specific. UK mortgages do not allow you to hand back the keys and walk away from the debt under any circumstances, whereas in the US this is sometimes possible in negative equity situations. The much-repeated point about the importance of equity is well-made. The purpose of this book is to dismantle fallacious narratives that banks use to successfully prevent reform of their industry. I think it achieves that with its measured tone and painstaking explanations. In particular, I liked the clarity about the linkage between poor risk management and fixation upon ROE Return on Equity , which banks use as their metric of success and basis for bonuses. The most interesting parts to me were the final chapters discussing the Basel II and III agreements on banking reform and the extent of regulatory capture. This is a somewhat stolid book, more textbook than reportage. Nonetheless, the content is enraging in light of how little banking has been changed by the catastrophic failures of My personal reading experience was in the three star realm, however I settled on four because I recommend it as a primer on What Went Wrong With Banking. Jun 04, Mark Walker rated it it was amazing. This is a must read, especially if finance is not your forte. Anat Admati and Martin Hellwig take a topic that is as equally unbearably boring as it is essential for the well-being of society, and make it understandable for the general public. That was their stated objective early in the book, and I think they accomplished that. What they reveal is not what those running the finance industry want people to understand, as it exposes alternative ways to make the finances of people whole and not ju This is a must read, especially if finance is not your forte. What they reveal is not what those running the finance industry want people to understand, as it exposes alternative ways to make the finances of people whole and not just the banks. The bankers' new clothes are fallacies and bills of goods sold to politicians and the public, and the authors rip off those false threads to expose the bankers' beauty marks for all to see. Among the many solutions they advocate are appropriate regulations on banks, and the enforced separation of the interests of supervisors and those financial institutions they regulate. These measures include greater equity requirements in banks before they pay out to share holders, limitations on leveraged debt, and restrictions on "innovations" such as mortgage-related securities and collateralized loan obligations to hide their true debt exposure. And perhaps in my opinion the sea change most needed is having banks and their officers evaluated in light of the long term benefits for the bank's health, and claw back previous bonuses if their actions produce negative returns in future years. The short term profit motive must be removed. Oct 10, Graham Clark rated it really liked it. An interesting post-financial crisis book about banking regulation. Wait, come back! It's aimed at the layperson so is an easy read. Basically, banks take huge risks and develop complex and complicated financial instruments that attempt to hide the risks. They are in a somewhat unique position in that their stability affects society as a whole, as opposed to just the owners and investors affected by other businesses. Instead of treating this as a great and serious responsibility, they take advan An interesting post-financial crisis book about banking regulation. Instead of treating this as a great and serious responsibility, they take advantage of it in every way in order to make more money. If this causes some banks to be devalued or go out of business, that is too bad. Even after the Great Financial Crisis, politicians and regulators are not willing to take important steps to limit the risks posed by reckless banks to wider society. This is a time more than ever to reject politicians, companies and lobbyists that espouse anti-regulation policies and free-market dogmatism. May 29, John Karrys rated it it was amazing. This woman is an ultimate warrior and Jamie Dimon's worst nightmare. No one is to big to jail. Fantastic book. Aug 17, Prasanth Manthena rated it it was amazing. Makes a very strong case that banks should be deleveraged and depend on equity just like other corporations. Jan 01, Jon rated it really liked it. By far the best book I've read on the global financial crisis. Feb 04, Thomas rated it really liked it Shelves: regulation , non-fiction. Focused to a fault. An excellent introductory text nonetheless. Jan 12, Tim Strotman rated it really liked it. This book's main argument is that banks need to be more heavily capitalized. It is amazing how much can be gained by sticking with this example. The book's weakness is that it makes no attempt to explain more complicated issues regulation's complexity so you have to go elsewhere to understand how these issues f This book's main argument is that banks need to be more heavily capitalized. The book's weakness is that it makes no attempt to explain more complicated issues regulation's complexity so you have to go elsewhere to understand how these issues fit in to the argument. But even if you understand much of what is discussed this book is useful because it provides simple examples that you can use to understand the news. Nov 13, Bighomer rated it really liked it Shelves: interesting-non- fiction. My only complaint is that it is quite repetitive. There is zero new information over the last three chapters, and even in the first ten chapters there is a lot of repetition. Basically, one could've thrown all the points the book makes in a three-slides powerpoint presentation. But that's a rude thing to say; in actuality the explanations are great if a few too many analogies to movies and sports and it's overall an easy but- good-read that explains past and current issues of banking and what to My only complaint is that it is quite repetitive. But that's a rude thing to say; in actuality the explanations are great if a few too many analogies to movies and sports and it's overall an easy but-good-read that explains past and current issues of banking and what to do about them. By far the best analysis on banking industry from a global perspective. It also doesn't fall into the traditional Occupy Wall Street vs. Free Market ideology warfare. Could have been a 5 stars book had the author not keep repeating himself in the middle portion of the book. It was painful to read when he is stating the same point for the 7th time in 3 chapters Take out the repetitiveness, easily shave off 60 pages of the book and become By far the best analysis on banking industry from a global perspective. Take out the repetitiveness, easily shave off 60 pages of the book and become a easy 5 star book! Mar 05, Nathaniel rated it it was amazing. A really insightful read into what is fundamentally the core issue with the banking industry in general. More or less , saving money is not a safe endeavour at least with investment and commercial banks because of their some what lackadaisical actions towards the handling of others money, there are solid solutions, much like bringing them back off the freedom to make ridiculous amounts of money without care for the fact that other peoples money is at much the same stake as everything else. Dec 25, Blake Jones rated it it was ok. I didn't finish it. I listened to it on audible and returned it. I think I would have liked the book more if it I had read it. Not a big fan of the narrator - very boring. I think she narrates for the economist which is fine, but not for this book. In all, a good explanation that banks are allowed to leverage way too much. It would create more stability in downturns. Jul 18, Louis S-B rated it liked it. Simplistic presenttion of the argument, but makes the point clear. Knowing that this book is for a greater audience, it is understandable that the argument would be presented in a simpler form. However, I think it becomes reductionist in some parts of the book. Still a respectable writer who definitely did her research. Jul 26, Colby rated it really liked it Shelves: economics , non-fiction. To be fair, the authors start at the basics, and their insistent hammering on the distinction between banks' 'capital' and their 'reserves' may not be bad in this world of immediacy. Would make a superb text for Corporate Finance Dec 05, Jim rated it it was ok. I did not finish the book. During the first part, the authors thoroughly describe the causes of many of the bank crises since the 19th century putting a lot of blame on misguided government regulation. Then they propose more regulation as the solution. It was at that point that I quit reading. The Bankers' New Clothes: Whats Wrong with Banking and What to Do about It by Anat Admati

Selected Editorial Reviews. 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, former governor of the Bank of England. I like this book. Paul Volcker, former chairman of the U. Federal Reserve and the U. Economic Recovery Advisory Board. Eugene F. Fama, University of Chicago. Related Related. Anat R. Professor , Finance. Even if the system enables cheaper loans, it also means bank shareholders and employees are protected from facing the consequences of their risky behaviour: taxpayers - the rich aunties - are on the hook. They are like a chemical firm carping about the cost of insuring against potential losses from toxic spillages it has itself caused. The problem is how to get the banking firmament from where it is now to where Admati and Hellwig think it needs to be. But the sad truth is that when confronted with a choice between a freestanding banking system and one which periodically blows up but enables artificially low borrowing rates, politicians will tend to choose the latter. That means low bank equity - and overpaid bankers - could be around for a while yet. Mar 23, Ian Robertson rated it it was amazing. Many books have tried to explain the origins of the financial crisis, and many more have offered advice to prevent a recurrence. An outstanding book that should be read by everyone: politicians, regulators, bankers, and those with an interest in a stable financial system i. There [has been] no serious analysis of how the financial system might be made safer. But this situation can change. With the right focus and a proper diagnosis of the problems, highly beneficial steps can be taken immediately. They also expose the repeated obfuscation of banks and lobbyists, highlight the complicity of politicians, and on occasion correct misinformation promulgated by individuals who should know better former Federal Reserve Governor Frederic Mishkin. They start with an example everyone will understand - a home mortgage - and link it to the gain or loss the homeowner would experience if their home rose or fell in value over the course of a year. Their prescription: issue equity immediately or stop dividend payments i. Written for a general audience, the book explains issues and industry terminology very well, features outstanding examples and analogies, and concludes with specific remedies and an estimate of associated costs. As an added bonus the book features an unparalleled notes section, which at over pages is a worthy read in itself. A truly outstanding effort. Feb 15, Richard Thompson rated it liked it Shelves: economics-and-business. This book drives home one simple idea again and again for over two hundred pages -- the banking system would be safer if minimum equity requirements of banks were to be increased. They reject other proposed solutions to the current fragility of the banking system as being too complex or too easily evaded and reject a variety of arguments that have been put forth as to why an increase in equity requirements would be hard to achieve or better put off to a later time or would have negative effects This book drives home one simple idea again and again for over two hundred pages -- the banking system would be safer if minimum equity requirements of banks were to be increased. They reject other proposed solutions to the current fragility of the banking system as being too complex or too easily evaded and reject a variety of arguments that have been put forth as to why an increase in equity requirements would be hard to achieve or better put off to a later time or would have negative effects on the banking system. They show how the explicit subsidy of deposit insurance and the implicit subsidy of the willingness to rescue banks that are "too big to fail" adds to the problem by giving banks incentives to load on as much debt as possible at the expense of equity. This book hugely oversimplifies the problems that the banking system faces, but that is not necessarily a bad thing, because sometimes complexity obscures simple solutions as was the case with the famous Gordian knot. An increase in bank equity positions probably won't be the cure-all that the authors claim that it will be, and I don't think that implementing it will be as painless as they claim, but they did convince me that it can be implemented relatively painlessly and in simple terms that make evasion difficult and that it is likely to do more to bring greater stability to the system than anything else that has been proposed. Because bank reform requires political action, the simplicity of the solution proposed in this book has a huge advantage -- it can be described and advocated in a few words, it can be sloganized, and a substantial portion of the electorate will be able to more or less understand it. The authors hint at other reforms that might be worth considering, such as breaking up the bigger banks into smaller businesses that are no longer too big to fail, or finding ways to make people who are part of the problem, such as managers and holders of junior debt or senior equity, bear more of the consequences when failures inevitably happen, but they don't really delve into those things because of their laser focus on the program of increasing equity requirements. There is one other major problem area that the authors barely mention -- the banks' huge trading positions in derivatives. They do say at one point that one proposed solution is to return to Glass-Stegall and make banks go back to the core business of taking deposits and making loans against them, but they reject that approach by saying that banks failed even when they were in that business, which is true, but the risk of that kind of failure has been largely fixed by the deposit insurance system. Speculation in derivatives creates a new kind of risk that is exponentially greater. This is something that is directly relevant to the authors' discussion of how big the equity requirements should be, so I was sorry that they did not discuss it, but I understand that their point was to describe a simple solution to what they describe as a simple problem and to sweep aside all of the complexities as being nothing more than attempts to obscure the real issues. So I forgive the authors for glossing over this problem, but I would have liked to see a more in depth discussion of how derivatives fit into the picture. Maybe they can write another book that deals with that part of the equation. Jul 01, Anna rated it really liked it Shelves: economics , politics , nonfiction. I thus found 'The Bankers New Clothes' rather slow at first, as it goes over familiar ground without the edge of exciting reportage Fool's Gold or intense rage Freefall: Free Markets and the Sinking of the Global Economy. The analogous mortgage examples get a bit repetitive and are somewhat US-specific. UK mortgages do not allow you to hand back the keys and walk away from the debt under any circumstances, whereas in the US this is sometimes possible in negative equity situations. The much-repeated point about the importance of equity is well-made. The purpose of this book is to dismantle fallacious narratives that banks use to successfully prevent reform of their industry. I think it achieves that with its measured tone and painstaking explanations. In particular, I liked the clarity about the linkage between poor risk management and fixation upon ROE Return on Equity , which banks use as their metric of success and basis for bonuses. The most interesting parts to me were the final chapters discussing the Basel II and III agreements on banking reform and the extent of regulatory capture. This is a somewhat stolid book, more textbook than reportage. Nonetheless, the content is enraging in light of how little banking has been changed by the catastrophic failures of My personal reading experience was in the three star realm, however I settled on four because I recommend it as a primer on What Went Wrong With Banking. Jun 04, Mark Walker rated it it was amazing. This is a must read, especially if finance is not your forte. Anat Admati and Martin Hellwig take a topic that is as equally unbearably boring as it is essential for the well-being of society, and make it understandable for the general public. That was their stated objective early in the book, and I think they accomplished that. What they reveal is not what those running the finance industry want people to understand, as it exposes alternative ways to make the finances of people whole and not ju This is a must read, especially if finance is not your forte. What they reveal is not what those running the finance industry want people to understand, as it exposes alternative ways to make the finances of people whole and not just the banks. The bankers' new clothes are fallacies and bills of goods sold to politicians and the public, and the authors rip off those false threads to expose the bankers' beauty marks for all to see. Among the many solutions they advocate are appropriate regulations on banks, and the enforced separation of the interests of supervisors and those financial institutions they regulate. These measures include greater equity requirements in banks before they pay out to share holders, limitations on leveraged debt, and restrictions on "innovations" such as mortgage-related securities and collateralized loan obligations to hide their true debt exposure. And perhaps in my opinion the sea change most needed is having banks and their officers evaluated in light of the long term benefits for the bank's health, and claw back previous bonuses if their actions produce negative returns in future years. The short term profit motive must be removed. Oct 10, Graham Clark rated it really liked it. An interesting post-financial crisis book about banking regulation. Wait, come back! It's aimed at the layperson so is an easy read. Basically, banks take huge risks and develop complex and complicated financial instruments that attempt to hide the risks. They are in a somewhat unique position in that their stability affects society as a whole, as opposed to just the owners and investors affected by other businesses. Instead of treating this as a great and serious responsibility, they take advan An interesting post-financial crisis book about banking regulation. Instead of treating this as a great and serious responsibility, they take advantage of it in every way in order to make more money. If this causes some banks to be devalued or go out of business, that is too bad. Even after the Great Financial Crisis, politicians and regulators are not willing to take important steps to limit the risks posed by reckless banks to wider society. This is a time more than ever to reject politicians, companies and lobbyists that espouse anti-regulation policies and free-market dogmatism. May 29, John Karrys rated it it was amazing. This woman is an ultimate warrior and Jamie Dimon's worst nightmare. No one is to big to jail. Fantastic book. Aug 17, Prasanth Manthena rated it it was amazing. Makes a very strong case that banks should be deleveraged and depend on equity just like other corporations. Jan 01, Jon rated it really liked it. By far the best book I've read on the global financial crisis. Feb 04, Thomas rated it really liked it Shelves: regulation , non-fiction. Focused to a fault. An excellent introductory text nonetheless. Jan 12, Tim Strotman rated it really liked it. This book's main argument is that banks need to be more heavily capitalized. It is amazing how much can be gained by sticking with this example. The book's weakness is that it makes no attempt to explain more complicated issues regulation's complexity so you have to go elsewhere to understand how these issues f This book's main argument is that banks need to be more heavily capitalized. The book's weakness is that it makes no attempt to explain more complicated issues regulation's complexity so you have to go elsewhere to understand how these issues fit in to the argument. But even if you understand much of what is discussed this book is useful because it provides simple examples that you can use to understand the news. Nov 13, Bighomer rated it really liked it Shelves: interesting-non-fiction. My only complaint is that it is quite repetitive. There is zero new information over the last three chapters, and even in the first ten chapters there is a lot of repetition. Basically, one could've thrown all the points the book makes in a three-slides powerpoint presentation. But that's a rude thing to say; in actuality the explanations are great if a few too many analogies to movies and sports and it's overall an easy but-good-read that explains past and current issues of banking and what to My only complaint is that it is quite repetitive. But that's a rude thing to say; in actuality the explanations are great if a few too many analogies to movies and sports and it's overall an easy but-good-read that explains past and current issues of banking and what to do about them. By far the best analysis on banking industry from a global perspective. It also doesn't fall into the traditional Occupy Wall Street vs. Free Market ideology warfare. Could have been a 5 stars book had the author not keep repeating himself in the middle portion of the book. It was painful to read when he is stating the same point for the 7th time in 3 chapters Take out the repetitiveness, easily shave off 60 pages of the book and become By far the best analysis on banking industry from a global perspective. Take out the repetitiveness, easily shave off 60 pages of the book and become a easy 5 star book! Mar 05, Nathaniel rated it it was amazing. A really insightful read into what is fundamentally the core issue with the banking industry in general. Demolishing these fallacies is the central point of 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. Boskin, former chairman of the President's Council of Economic Advisers, " The Bankers' New Clothes Princeton University Press is a book that lays out the problems in banking revealed by the crisis and asks how to solve them. The authors, Anat Admati and Martin Hellwig draw upon accounts of the crisis and come up with some clear prescriptions based on what they see as the biggest problem--that banks are over-leveraged. The real strength of their book is that they walk their readers through the balance sheet and to a regulatory answer to the banking problem, an answer that's elegant in its simplicity and far-reaching in its potential to prevent and manage financial crises. 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. But Anat Admati, a finance professor at Stanford University, and Martin Hellwig, a director at the Max Planck Institute for Research on Collective Goods, have done an admirable job in explaining how capital in the banking system works to absorb shocks, and how too little of it makes banks unstable. Donlan, Barron's, "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. But in their new book, Admati and Hellwig make a forceful case for a classic and simple solution to excessive, unregulated lending: higher capital ratios for banks. Council of Economic Advisors , "Increasing capital is the most sure-fire way of improving financial stability. In a new book they argue. The authors persuasively argue that the solution is higher levels of equity capital throughout the banking industry to offset the impact of the implied government protections against failure. Admati and Hellwig identify low equity of banks as single most important cause of the crisis. Datar, The Hindu, " The Bankers' New Clothes Princeton University Press is a book that lays out the problems in banking revealed by the crisis and asks how to solve them. 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. 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. Here, they aim to demystify banking and expand the range of voices in the debate; encouraging people to form opinions and express doubts will ensure a healthier financial system as people understand the issues and influence policy. The authors push for aggressive reform by outlining specific steps that can be taken to change our banking system for the better. Donlan, Barron's, Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. The value of The Bankers' New Clothes is that it sets all out in clear and accessible terms over little more than pages, without cutting corners. 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. Fama, University of Chicago, "Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. With its clear explanations, many examples, and analogies, the book is accessible to readers who do not have business backgrounds and who want to better understand banking. Louis Post-Dispatch, Admati and Hellwig have done something extraordinary. They took [banking] frustration and all its complex details and gave it a simple narrative, one that both explains what banks have been getting away with and what we might ask that Congress do about it. Louis Post-Dispatch, "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. 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. Arrow, Nobel Laureate in Economics, "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. Talbott, Huffington Post, [P]owerful. Bair, author of Bull by the Horns and former chairperson of the U. Louis Post-Dispatch, "[B]uy this book; read this book; give this book to your friends; discuss this book; act on this book. Datar, The Hindu, The Bankers' New Clothes is wowing critics of fragile banks with a simple and attractive message: Force banks to have much thicker cushions of capital and you can make them safer without paying any cost in terms of higher interest rates, less lending, or lower economic growth. Datar, The Hindu, "Admati and Hellwig are on a mission to teach citizens, policymakers, and academic economists about the principles of sound banking practice and regulation, as well as the pitfalls and immense social costs of failing to abide by those principles. Much economic pain--such as the U. 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. Legislation has not removed too-big-to-fail financial policies, continuing the mistake of making innocent citizens responsible for bankers' errors. The Bankers' New Clothes makes the case for increased equity capital and answers bankers' arguments. 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.

Federal Reserve and the U. Economic Recovery Advisory Board, "Admati and Hellwig explain, in layman's terms, some of the silly arguments bankers make for keeping to the status quo and preventing any new regulation of the banks from ever being enacted. And they do a great job. Admati and Hellwig have made a gift to you. You don't have to go wrestle with banks' financial statements or their annual reports or their 10Q's. You don't need to pull out your old accounting textbooks or call your college economics teacher to have her explain to you again why debt leverage increases risk. Admati and Hellwig have done all the hard work for you. But, you have to read their book. Talbott, Huffington Post, Anat Admati and Martin Hellwig are academics with a gift for taking the mind-numbing minutiae of banking and presenting it in a way that the average reader can understand. But it can be read by anyone interested in banking--bankers, policy makers and researchers. Admati and Hellwig take a lot of time to clearly explain the problems with depending too much on borrowed money. Louis Post-Dispatch, Ms. Anat 'gets' banking, and gets it better than most. The fact that she is ruffling feather relates more to the fact that she is questioning deeply held--yet hardly ever challenged--belief systems within the industry, than any lack of understanding. The authors achieve three things. First, they explain basic financial theory with simple examples that any moderately numerate individual can understand. Second, they show that these basic ideas apply, with modest differences, also to banking. Finally, they prove that, in opposing them, bankers and their apologists have spun intellectual raiment as invisible as the emperor's new clothes. Read this book. You will then understand the economics. Once you have done so, you will also appreciate that we have failed to remove the causes of the crisis. Further such crises will come. It argues that as long as implicit taxpayer guarantees incentivize banks to raise funds almost exclusively through issuing debt, the global financial system will be subject to periodic destructive crises. The most effective remedy is to force banks to strike a better balance between debt and equity, but there have been many obstacles to implementing this improvement. Future efforts to regulate the financial system should start here. It is entirely persuasive that the extent of their leverage makes the financial system fragile, and it clearly and patiently demolishes all the counter-arguments made by the banks and their lobbyists. 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. 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. Financial reform shouldn't be left solely to Wall Street bankers and their captured policymakers in Washington, D. 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 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. They argue that banks should fund themselves with more equity and less debt--or, to put it bluntly, that banks should risk more of their own money, and less of everyone else's. 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. 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. Donlan, Barron's, "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. 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. Boskin, former chairman of the President's Council of Economic Advisers, " The Bankers' New Clothes Princeton University Press is a book that lays out the problems in banking revealed by the crisis and asks how to solve them. The authors, Anat Admati and Martin Hellwig draw upon accounts of the crisis and come up with some clear prescriptions based on what they see as the biggest problem--that banks are over-leveraged. The real strength of their book is that they walk their readers through the balance sheet and to a regulatory answer to the banking problem, an answer that's elegant in its simplicity and far-reaching in its potential to prevent and manage financial crises. 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. But Anat Admati, a finance professor at Stanford University, and Martin Hellwig, a director at the Max Planck Institute for Research on Collective Goods, have done an admirable job in explaining how capital in the banking system works to absorb shocks, and how too little of it makes banks unstable. Donlan, Barron's, "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. But in their new book, Admati and Hellwig make a forceful case for a classic and simple solution to excessive, unregulated lending: higher capital ratios for banks. Council of Economic Advisors , "Increasing capital is the most sure-fire way of improving financial stability. In a new book they argue. The authors persuasively argue that the solution is higher levels of equity capital throughout the banking industry to offset the impact of the implied government protections against failure. Admati and Hellwig identify low equity of banks as single most important cause of the crisis. Datar, The Hindu, " The Bankers' New Clothes Princeton University Press is a book that lays out the problems in banking revealed by the crisis and asks how to solve them. 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. 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. Here, they aim to demystify banking and expand the range of voices in the debate; encouraging people to form opinions and express doubts will ensure a healthier financial system as people understand the issues and influence policy. The authors push for aggressive reform by outlining specific steps that can be taken to change our banking system for the better. Donlan, Barron's, Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. The value of The Bankers' New Clothes is that it sets all out in clear and accessible terms over little more than pages, without cutting corners. 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. Fama, University of Chicago, "Many readers may feel their stomachs sink at the mention of capital ratios and systemic risk. With its clear explanations, many examples, and analogies, the book is accessible to readers who do not have business backgrounds and who want to better understand banking. Louis Post-Dispatch, Admati and Hellwig have done something extraordinary. 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 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. Playing next Lloyd Nikolaus. Sabatino Alan. Jimmy Butler's 'you're in trouble' taunt all about LeBron James.

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