A room full of naked bankers: A Quick Look at Anat Admati's "The Bankers’ New Clothes"

From the Enlightened Economist:

This morning I had the pleasure of attending a breakfast debate hosted by Prospect for Anat Admati, co-author of the brilliant The Bankers’ New Clothes. The book has a clear, simple message: banks should be required to  behave like normal businesses, and invest their own funds in projects with a good (risk-adjusted) return. They should not be subsidised to borrow money to invest in risky trading activities. “What is special about banks is what they get away with,” Admati says. The mechanism for moving from our world of zombie banks that can still bring down the whole economy and are still receiving massive taxpayer subsidies to a world of viable banks that finance the real economy is to require them to hold much, much more equity on the liabilities side of their balance sheet, moving towards that by not paying dividends for the foreseeable future.

The book is terrific, and if you don’t want to read a  has a short myth-buster addressing the most frequent objections to the proposals. For of course bankers object to being told their industry harms the economy and is not commercially viable without government subsidy. Many people – including both politicians and many bankers – don’t understand the issues. There’s a lot of jargon and few people want to look stupid by admitting they don’t understand....MORE