A Wall Street Journal, Financial Times, and Bloomberg Businessweek Book of the Year

Why our banking system is broken—and what we must do to fix it

New bank failures have been a rude awakening for everyone who believed that the banking industry was reformed after the Global Financial Crisis—and that we’d never again have to choose between massive bailouts and financial havoc. The Bankers’ New Clothes uncovers just how little things have changed—and why banks are still so dangerous. Writing in clear language that anyone can understand, Anat Admati and Martin Hellwig debunk the false and misleading claims of bankers, regulators, politicians, academics, and others who oppose effective reform, and they explain how the banking system can be made safer and healthier. Thoroughly updated for a world where bank failures have made a dramatic return, this acclaimed and important book now features a new preface and four new chapters that expose the shortcomings of current policies and reveal how the dominance of banking even presents dangers to the rule of law and democracy itself.

"Powerful. . . . The authors persuasively argue that the solution is higher levels of equity capital throughout the banking industry to offset the impact of the implied government protections against failure." - The Economist

"In a year of important books about the recent economic crisis, the most important one told us simply how to stop the next one." - Wall Street Journal

"This is the most important book to have come out of the financial crisis. It argues, convincingly, that the problem with banks is that they operate with an order of magnitude too little equity capital, relative to their assets. Targeting return on equity, without consideration of risk, allows bankers to pay themselves egregiously, while making their institutions and the economy hugely unstable." - Financial Times

"[Admati and Hellwig] have done an admirable job in explaining how capital in the banking system works to absorb shocks, and how too little of it makes banks unstable." - The Economist

"The authors have written the book for the enlightenment of the average reader who has no background in economics, finance or quantitative fields. But it can be read by anyone interested in banking--bankers, policy makers and researchers." - Business Standard

"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. . . . The authors push for aggressive reform by outlining specific steps that can be taken to change our banking system for the better." - Publishers Weekly

"An important book for readers interested in what has been done, and what remains to be done, when it comes to safeguarding financial institutions." - Kirkus Reviews

"This title is a must read for management and human resource professionals within the banking industry as well as government policymakers. With its clear explanations, many examples, and analogies, the book is accessible to readers who do not have business backgrounds and who want to better understand banking." - Library Journal

"Financial regulation has become a hot topic in the wake of the recent crisis; many complex proposals have ensued, and a dizzying array of new acronyms and agencies has emerged. But in their new book, Admati and Hellwig make a forceful case for a classic and simple solution to excessive, unregulated lending: higher capital ratios for banks." - Finance & Development

"The book deserves to be read by both bankers and policymakers as it debunks many of the myths that have been used to justify excessive leverage in banking." - Economic & Political Weekly

"In simple and accessible terms, the authors show convincingly that banks are as fragile and destructive as they are, not because they must be, but because they want to be—and they get away with it." - Shanghai Daily

"A clear and detailed call for banking reform. Arguing that the system is no safer today than before the financial crisis, the authors reject some bankers' and politicians' fears that further regulations would be too expensive and instead call for extensive change. Their starting place: Make banks responsible for their own mistakes." - Worth

"This excellent volume provides an invaluable lens through which to view modern banking and the ways it has evolved to privatize returns and socialize risks. . . . Admati and Hellwig provide an accessible explanation of the inherent risks in the current banking system and propose sensible rules and reforms to make the system stable without damaging bank lending or economic growth." - Choice

"The authors write well in simple language any adult who reads English can understand, and then support each chapter with exhaustive endnotes for economists and to prove they are not making anything up; the banks really are as bad as they say, and we can fix it." - Reference & Research Book News

"The book pulls off the trick of explaining a lot of technical points about banking in highly accessible detail." - Fool's Gold