The Parade of the Bankers’ New Clothes Continues: 44 Flawed Claims Debunked

74 Pages Posted: 11 Jul 2013 Last revised: 13 Feb 2024

See all articles by Anat R. Admati

Anat R. Admati

Stanford Graduate School of Business

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods; University of Bonn - Department of Economics; European Corporate Governance Institute (ECGI)

Date Written: January 4, 2024

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.

Keywords: capital regulation, financial institutions, capital structure, capital regulation, too big to fail, systemic risk, bank equity, contingent capital

JEL Classification: G21, G28, G32, G38, H81, K23

Suggested Citation

Admati, Anat R. and Hellwig, Martin F., The Parade of the Bankers’ New Clothes Continues: 44 Flawed Claims Debunked (January 4, 2024). European Corporate Governance Institute – Finance Working Paper No. 951/2024, Available at SSRN: https://ssrn.com/abstract=2292229 or http://dx.doi.org/10.2139/ssrn.2292229

Anat R. Admati (Contact Author)

Stanford Graduate School of Business ( email )

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Martin F. Hellwig

Max Planck Institute for Research on Collective Goods ( email )

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University of Bonn - Department of Economics

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European Corporate Governance Institute (ECGI) ( email )

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