The Bankers’ New Clothes

January 9, 2013

New book by Anat Admati and Martin Hellwig and the subtitle is What’s Wrong with Banking and What to Do about it. Here is their bottom line:

We have argued that if banks have much more equity, the financial system will be safer, healthier, and less distorted. From society’s perspective, the benefits are large and the costs are hard to find; there are virtually no trade-offs.

The proposal is fair, though not with the claim that this is virtually costless, as is laid out in their chapter seven (they focus on the question of whether debt and equity “require” comparable rates of return, rather than the general notion of opportunity cost). In any case this is a major work on banking and its regulation. The book’s home page.