The Banker's New Clothes Analysis

The book I chose to read was “The Banker’s New Clothes” by Anat Admati and Martin Hellwig. There are a number of reasons I selected this book. Firstly, I selected this particular book due to my own interest in the reasons behind the financial crisis and also to gain more of an insight into the background of the banking system and its policies. The reviews I had read on this book were extremely thought provoking and even at a first glance, the cover picture of the book I thought was metaphorically bizarre and I wanted a greater insight into it. After I read the abstract at the back of the book I was able to get a feel for what the book would be about and I could also see the many nominations this book had, meaning it had to be of interest to
His fields of research include Political and Monetary economics which is quiet evident in “The Banker’s New Clothes” Hellwig’s academic year began at Stanford University with a Postdoctoral which was then followed by 3 years at Princeton University as an Assistant Professor of Economics. Afterwards, he held the position of an Associate Professor at The University of Bonn and a professor of Economics at The University of Bonn, Basel and Mannheim respectively. As well as this, he held visiting positions at Harvard University, Hebrew University, the London School of Economics and the Universite Catholique de Louvain. His book “The Banker’s New Clothes” was published in 2013 by Princeton University Press was written jointly with Anat Admati. Anat received her BSc in The Hebrew University, Jerusalem and her PhD and MA in University of Yale. She has extensively written on information diffusion in areas such as financial markets and contracting but more recently on areas such as corporate finance and banking, which we see in the book “The Banker’s New Clothes”. Anat Admati is now the Professor of Finance and Economics at the Graduate School of Business at Stanford University. She was also named one of the 100 most influential people in the world by Time Magazine in
One of the key themes discussed within the book is “people often use convenient narratives, stories they tell to explain what happened or what is going on, hoping that others will not ask too many vexing questions” (Admati and Hellwig 2013, p.209) In the first part of the book, a foundation for the arguments which follow in the later chapters is laid out, such as, borrowing and the risks involved and banking regulation. Reasons as to why one would argue against the banks and the problems with the banks are shown. Banks borrow enormous amounts of money in comparison to any other institute. For most companies borrowing or debt is represented by less than 50 percent of their total assets. “For some large European Banks, the fraction is even higher, above 97 percent.” (Admati and Hellwig 2013, pp.7-8) The leverage effect is discussed and even though leverage may create opportunities for the borrower, it can also increase risks as the more reliant the borrower is on debt, the greater chance that the borrowers equity could be entirely wiped out. But, if the borrower has taken a non recourse, the borrowers loss is limited, this still leaves the downside to affect the creditor. Also, when a