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 lack of reform, exposing them as invalid. Anat Admati and Martin Hellwig argue that we can have a safer and healthier banking system without sacrificing any of its benefits, and at essentially no cost to society. They seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms.
Once upon a time the banking system was thriving, not a worry in sight. However, the 2007 financial crisis exposed the banks' inner workings and the risk taking that came at significant cost to the economy. Professor and journalist Admati and economic researcher Hellwig argue that it is possible to have a well-balanced banking system without any cost to society; weak regulations and lax enforcement is what caused the buildup of risk unleashed in the crisis. Here, they aim to demystify banking and expand the range of voices in the debate; encouraging people to form opinions and express doubts will ensure a healthier financial system as people understand the issues and influence policy. Part one provides an overview of how borrowing works and how it affects risk. Part two addresses the delicacy of the financial system and how its fragility can be reduced. Part three explains the possibility of transitioning to a healthier system that provides a solid system that consistently supports the economy. The authors push for aggressive reform by outlining specific steps that can be taken to change our banking system for the better; the question, is will anyone take those steps?