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.
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.
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.
Arthur Levitt, former chairman of the U.S. Securities and Exchange Commission, interviews Anat Admati, a professor at Stanford University and coauthor of "The Bankers' New Clothes: What's Wrong With Banking and What to Do About it." They spoke on Bloomberg Radio's "A Closer Look With Arthur Levitt."
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.
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.