In their important new book, “The Bankers’ New Clothes,” Anat Admati and Martin Hellwig challenge a cherished belief of people who run big banks: Equity is “expensive” and requiring banks to fund themselves with more equity (relative to their debts) will somehow slow the economy.
Breezing into a sunlit conference room near London’s Hyde Park Corner wearing an open-collared white shirt that frames his square jaw, Loic Fery exudes the confidence of a soccer club owner who’s enjoyed success on the pitch and with the team’s account ledgers.
A lot of people seem to hold some version of both of the following beliefs: (1) Banks have artificially low capital levels because of implied government subsidies, and (2) Shadow banking is undercapitalized and should be subject to bank-like regulation.
The six very large U.S. bank holding companies -- JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley -- share a pressing intellectual problem: They need to explain why they should be allowed to continue with their dangerous business model.
Anat Admati, the author of "The Bankers' New Clothes," says banks do not have a problem with lending money, they have a problem with the "will" to lend money. Admati spoke to Bloomberg's Carol Massar and Matt Miller on "Bloomberg On the Economy."
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon railed against higher capital requirements last year at the same time his bank was using derivatives to hedge more than $1 trillion of loans and bonds.