Saturday Must-Read: Roger Myerson: Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig’s “The Bankers’ New Clothes”

Roger Myerson: Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig’s “The Bankers’ New Clothes”: “Worthy of such global attention as Keynes’s General Theory received in 1936…

…[is] The Banker’ New Clothes: What’s Wrong with Banking and What to Do about It by Anat Admati and Martin Hellwig…. A book for the general public about fundamental problems of financial instability in our time… banks should be required to have much more equity…. In response to all their arguments against the increasingly complex provisions for minimizing banks’ capital requirements, Admati and Hellwig report (p. 182) that they have never received a coherent answer to the basic question of why banks should not have equity levels between 20 and 30 percent of their total assets…. This recommendation is simple, but it is based on their deep command of theory. The book is long… because it takes time to rebut all the bankers’ arguments…