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The Bankers' New Clothes: Whats Wrong with Banking and What to Do about It
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The Bankers' New Clothes: Whats Wrong with Banking and What to Do about It

3.85  ·  Rating details ·  604 ratings  ·  63 reviews
What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the ...more
Hardcover, 416 pages
Published February 24th 2013 by Princeton University Press (first published January 1st 2013)
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Breakingviews
Mar 25, 2013 rated it really liked it
By George Hay

How much capital do banks need? Ask the Basel Committee of global banking supervisors, and it will recommend 3 percent of total bank assets. Ask tougher observers like the UKs banking commission, and youll hear 4 percent. But ask Anat Admati and Martin Hellwig, the economists behind "The Bankers New Clothes", and youre in for a shock: theyre after 30 percent.

Bankers greet this kind of talk with a bemused shake of the head. Hiking capital, they claim, will just mean cutting the
...more
Ian Robertson
Mar 23, 2013 rated it it was amazing
Many books have tried to explain the origins of the 2008 financial crisis, and many more have offered advice to prevent a recurrence. The Bankers New Clothes is the clearest prescription yet to address the central cause of the crisis: the financial system itself, and in particular modern (overleveraged) banking. An outstanding book that should be read by everyone: politicians, regulators, bankers, and those with an interest in a stable financial system (i.e. anyone with a bank account, who pays ...more
Richard Thompson
This book drives home one simple idea again and again for over two hundred pages -- the banking system would be safer if minimum equity requirements of banks were to be increased. They reject other proposed solutions to the current fragility of the banking system as being too complex or too easily evaded and reject a variety of arguments that have been put forth as to why an increase in equity requirements would be hard to achieve or better put off to a later time or would have negative effects ...more
Anna
Jul 01, 2013 rated it really liked it
After this, Ive had enough books about What Went Wrong With Banking. The trouble is, they all boil down to the same thesis: bankers took too many risks, banks became too heavily indebted, crisis ensued, but theyre still at it. Theres not much more to be said until some of suggestions for regulation that all these books suggest are actually followed, or some other radical change to banking occurs. I thus found 'The Bankers New Clothes' rather slow at first, as it goes over familiar ground without ...more
Graham Clark
Oct 10, 2017 rated it really liked it
An interesting post-financial crisis book about banking regulation. Wait, come back! It's aimed at the layperson so is an easy read. Basically, banks take huge risks and develop complex and complicated financial instruments that attempt to hide the risks. They are in a somewhat unique position in that their stability affects society as a whole, as opposed to just the owners and investors affected by other businesses. Instead of treating this as a great and serious responsibility, they take ...more
John Karrys
May 29, 2014 rated it it was amazing
This woman is an ultimate warrior and Jamie Dimon's worst nightmare. No one is to big to jail. Fantastic book.
Thomas
Feb 04, 2015 rated it really liked it
Focused to a fault. An excellent introductory text nonetheless.
Jon
Jan 01, 2015 rated it really liked it
By far the best book I've read on the global financial crisis.
Prasanth Manthena
Aug 17, 2014 rated it it was amazing
Makes a very strong case that banks should be deleveraged and depend on equity just like other corporations
Mark Walker
Jun 04, 2019 rated it it was amazing
This is a must read, especially if finance is not your forte. Anat Admati and Martin Hellwig take a topic that is as equally unbearably boring as it is essential for the well-being of society, and make it understandable for the general public. That was their stated objective early in the book, and I think they accomplished that. What they reveal is not what those running the finance industry want people to understand, as it exposes alternative ways to make the finances of people whole and not ...more
Tim Strotman
Jan 12, 2019 rated it really liked it
This book's main argument is that banks need to be more heavily capitalized. It uses a simple example, the financing of a $300K house, to examine how the financing of banks is affected by various options: equity, loan guarantees, change in value of the property. It is amazing how much can be gained by sticking with this example. The book's weakness is that it makes no attempt to explain more complicated issues (regulation's complexity) so you have to go elsewhere to understand how these issues ...more
Bighomer
Nov 13, 2018 rated it really liked it
My only complaint is that it is quite repetitive. There is zero new information over the last three chapters, and even in the first ten chapters there is a lot of repetition. Basically, one could've thrown all the points the book makes in a three-slides powerpoint presentation.

But that's a rude thing to say; in actuality the explanations are great (if a few too many analogies to movies and sports) and it's overall an easy but-good-read that explains past and current issues of banking and what to
...more
Haoxiang Qiu
Feb 15, 2020 rated it really liked it  ·  review of another edition
Shelves: wharton-im-club
By far the best analysis on banking industry from a global perspective. It also doesn't fall into the traditional Occupy Wall Street vs. Free Market ideology warfare. This book is backed with concrete research & real data.

Could have been a 5 stars book had the author not keep repeating himself in the middle portion of the book. It was painful to read when he is stating the same point for the 7th time in 3 chapters... Take out the repetitiveness, easily shave off 60 pages of the book and
...more
Nathaniel
Mar 05, 2018 rated it it was amazing
A really insightful read into what is fundamentally the core issue with the banking industry in general. More or less , saving money is not a safe endeavour at least with investment and commercial banks because of their some what lackadaisical actions towards the handling of others money, there are solid solutions, much like bringing them back off the freedom to make ridiculous amounts of money without care for the fact that other peoples money is at much the same stake as everything else.
Blake Jones
Dec 25, 2018 rated it it was ok
I didn't finish it. I probably read 65-70% of the book. I listened to it on audible and returned it. I think I would have liked the book more if it I had read it. Not a big fan of the narrator - very boring. I think she narrates for the economist which is fine, but not for this book. In all, a good explanation that banks are allowed to leverage way too much. Should go back to leverage on 90% equity, not 95 or 98%. It would create more stability in downturns.
Louis S-B
Jul 18, 2018 rated it liked it
Simplistic presenttion of the argument, but makes the point clear. Knowing that this book is for a greater audience, it is understandable that the argument would be presented in a simpler form. However, I think it becomes reductionist in some parts of the book. Still a respectable writer who definitely did her research.
Colby
Jul 26, 2018 rated it really liked it
4 stars, not 5, only because the authors took 400 pages to say, "[all] banks need more equity"; a necessary message oft shouted down by bankers and their ilk.

To be fair, the authors start at the basics, and their insistent hammering on the distinction between banks' 'capital' and their 'reserves' may not be bad in this world of immediacy. Would make a superb text for Corporate Finance 101.
Jim
Dec 05, 2018 rated it it was ok
I did not finish the book. During the first part, the authors thoroughly describe the causes of many of the bank crises since the 19th century putting a lot of blame on misguided government regulation. Then they propose more regulation as the solution. It was at that point that I quit reading.
Glyndwr
Jan 03, 2019 rated it it was amazing
They still naked...
Adam
Feb 24, 2019 rated it it was ok
300 pages too long to present the message about the dangers of unregulated banking and current equity balance requirements.
V.C. Remus
Aug 01, 2017 rated it it was ok
Tedious and centralized to a single, over-simplified idea. Also, there was a part in the book that'd mentioned how "all stocks" issue dividends. I work in finance and that's simply untrue; companies are under no obligation to issue dividends (e.g., certain growth and speculative stocks).
Syed Ashrafulla
Jan 06, 2015 rated it really liked it
Shelves: macroeconomics
This is a good book in describing the mechanics behind equity at a bank. The proposal of the authors is that banks should increase equity to about a quarter of total (i.e. not risk-weighted) assets. They provide good arguments but their goal is mainly to provide counter-arguments from those who desire high leveraging.

Essentially the advantage of equity is to mitigate downside risk. As with any investment, mitigating downside risk means decreasing maximum upside. Their argument is that banks have
...more
Sara
Jul 04, 2014 rated it liked it
Basle III is naked

[Through my ratings, reviews and edits I'm providing intellectual property and labor to Amazon.com, Inc., listed on Nasdaq, which fully owns Goodreads.com and in 2013 posted revenues for $74 billion and $274 million profits. Intellectual property and labor require compensation. Amazon.com, Inc. is also requested to provide assurance that its employees and contractors' working conditions meet the highest health and safety standards at all the company's sites.]

An antidote to
...more
A
May 11, 2013 rated it it was amazing
Using some pretty core principals of corporate finance, Admati and Hellwig cut through a lot of the muddle around bank regulations and make a pretty strong case for why banks need higher equity requirements. I was pretty impressed by their rather clear analysis and parsimonious proposal for dealing with bank risks, too big to fail, etc. It is a little surprising that this is only now getting a lot of traction in the public debate. The way Admati presents her arguments, the case for much higher ...more
David
Aug 14, 2014 rated it liked it
This book is a decent book if one does not know how a "bank" works. Rather, how an individual's finance or company's or even a bank or nation works just about the same. The theme of this book is simple: reduce the debt position, and increase equity position, period. Authors are using simple personal house mortgage finance to repeatedly guiding us what kind of tricks and lies banks' stockholders, bondholders are using in order to disguise their tracks of over-finance, or simply reckless use of ...more
Mike
Jun 26, 2013 rated it it was amazing
This book makes an important argument for the importance of increasing equity requirements for financial firms. The authors argue a wide range of interrelated positive outcomes that ensue from requiring more real equity (not just assets, or risk-weighted assets, or other "gameable" substitutes). The argument is really rooted in what is a common sense sort of perspective that with more "skin in the game" financial institutions will behave more business-like. Current regulations including Basel ...more
Melissa
Oct 28, 2014 rated it liked it
Shelves: nonfiction
This book was dry, and even though I work in banking and have more than a casual interest, I still struggled to get through it. I think the length worked against it, and a more direct approach with fewer examples would have been better. That being said, the author makes a very compelling argument that banks need more capital in order to prevent another massive banking crisis.

The main premise is that the BASEL III capital requirements are too low. The first 2/3 of the book is a detailed
...more
Yalman Onaran
Jan 09, 2013 rated it it was amazing
This is the detailed elaboration of a point I consistently make in my book -- that banks around the world had very little capital before the crisis and small losses was all that it took to bring them down. So in a way it's almost like Volume II in Zombie Banks series. Admati and Hellwig explain very patiently why it's crucial to have more capital -- much more, just as I suggest in my recommendations section at the end -- while going to great lengths in debunking the bankers' flawed argument of ...more
Paola
Aug 06, 2013 rated it really liked it
Shelves: pop-economics, 2013
Very timely, very readable and very clear, while making a concrete proposal to reduce the risk of recurrence of the last great banking crisis of 2007-2008 (the recipe being: increase equity requirements to 20-30%) this book is also a pleasant introduction to corporate finance.

There are two levels to the book - reading the main text and ignoring the notes provides a book perfectly accessible to the lay person. The notes are more detailed and provide answers to criticisms, dwell further into
...more
Nick Klagge
Apr 11, 2014 rated it liked it
Shelves: economics
A pretty good book, especially given that I often don't like popular economics books. I'd probably recommend that anyone with a reasonable understanding of banking skip the first couple of chapters, but the rest of the book is worth reading. The authors do an admirable job of explaining potentially daunting concepts like Modigliani-Miller in plain English. Perhaps as a corollary, their policy prescription is very easily expressed: banks should be made to hold more capital. I tend to be skeptical ...more
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