Skip to main content

Newsroom

March 25, 2013

Why bankers are intellectually naked

“The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It”, by Anat Admati and Martin Hellwig, Princeton, RRP £19.95, RRP $29.95

The UK’s Independent Commission on Banking, of which I was a member, made a modest proposal: the proportion of the balance sheet of UK retail banks that has to be funded by equity, instead of debt, should be raised to 4 per cent. This would be just a percentage point above the figure suggested by the Basel Committee on Banking Supervision. The government rejected this, because of lobbying by the banks.

Why might even so tiny an increase in the equity-funded proportion of the balance sheet be objectionable? The answer is that what is small to everybody else is huge to bankers. To them, a one-third increase in equity means a 25 per cent decline in return on equity. To bankers, the ICB’s tiny step was a big reduction in prospective returns and so in their own rewards.

If you think that running banks with so little loss-absorbing equity is crazy, you are right. This book shows you why you are right. It is the most important to emerge from the crisis.”

***

Read full Financial Times review of Anat Admati’s book here

 
In the News
Share

MEDIA REQUESTS

For media inquiries, please contact us at
press@bettermarkets.org or 202-618-6433.

Contact Us

For media inquiries, please contact press@bettermarkets.org or 202-618-6433.

To sign up for our email newsletter, please visit this page.

Name(Required)
This field is for validation purposes and should be left unchanged.

Sign Up — Stay Informed With Our Monthly Newsletter

This field is for validation purposes and should be left unchanged.

For media inquiries,

please contact press@bettermarkets.org or 202-618-6433.

Donate

Help us fight for the public interest in our financial markets, protecting Main Street from Wall Street and avoiding another costly financial collapse and economic crisis, by making a donation today.

Donate Today