The Parade of the Bankers’ New Clothes Continues: 31 Flawed Claims Debunked

33 Pages Posted: 11 Jul 2013 Last revised: 12 Jan 2016

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

Date Written: December 2015

Abstract

The debate on banking regulation has been dominated by flawed and misleading claims. The title of our book The Bankers New Clothes: What’s Wrong with Banking and What to Do about It (Princeton University Press, 2013, see bankersnewclothes.com) refers to flawed claims about banking and banking regulation, and the book discusses and debunks many of them.

Flawed claims are still made in the policy debate, particularly in the context of proposals that banks be funded with more equity and less debt than current or new regulations would allow. Those who make the flawed claims do so without addressing our arguments, even when commenting on the book or on our other writings. Because the financial system continues to be dangerous and distorted, however, flawed claims must not win the policy debate.

This document provides a brief account of claims that we have come across since the book was published in February, 2013. We provide brief responses, with references to more detailed discussions in the book and elsewhere.2 Many claims are asserted without any justification. Some of these claims are simply false or based on fallacious reasoning. Other claims are misleading or irrelevant, for example confusing costs and benefits to banks or bankers with costs and benefits to society, which must be the focus of policy. Still other claims are based on implausible theories that ignore important parts of reality.

We first provide a list of the flawed claims that the rest of this document takes on. References to chapter numbers refer to our book. Nothing that we heard or read changes our conclusions or our strong policy recommendations.

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: 31 Flawed Claims Debunked (December 2015). Rock Center for Corporate Governance at Stanford University Working Paper No. 143; Stanford University Graduate School of Business Research Paper No. 15-58. 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 )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-4987 (Phone)
650-725-6152 (Fax)

Martin F. Hellwig

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Bonn - Department of Economics

Adenauerallee 24-42
D-53113 Bonn
Germany

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