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Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig's The Bankers' New Clothes

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  • Roger B. Myerson

Abstract

In an important new book, Anat Admati and Martin Hellwig raise broad critical questions about bank regulation. These questions are reviewed and discussed here, with a focus on how the problems of maintaining a stable financial system depend on fundamental problems of information and incentives in financial intermediation. It is argued that financial regulatory reforms can be reliably effective only when their basic principles are understood by informed citizens, and that Admati and Hellwig's book is a major contribution toward this goal, as it clearly lays out the essential case for requiring banks to have more equity.

Suggested Citation

  • Roger B. Myerson, 2014. "Rethinking the Principles of Bank Regulation: A Review of Admati and Hellwig's The Bankers' New Clothes," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 197-210, March.
  • Handle: RePEc:aea:jeclit:v:52:y:2014:i:1:p:197-210
    Note: DOI: 10.1257/jel.52.1.197
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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jel.52.1.197
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    File URL: http://www.aeaweb.org/jel/ds/5201/JEL.52.1.197_ds.zip
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    References listed on IDEAS

    as
    1. Charles A E Goodhart, 2009. "The Regulatory Response to the Financial Crisis," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
    2. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    5. Gorton, Gary B., 2012. "Misunderstanding Financial Crises: Why We Don't See Them Coming," OUP Catalogue, Oxford University Press, number 9780199922901.
    6. Charles A.E. Goodhart, 2009. "The Regulatory Response to the Financial Crisis," Books, Edward Elgar Publishing, number 13514, December.
    7. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2012. "Guardians of Finance: Making Regulators Work for Us," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262017393, January.
    8. Darrell Duffie, 2011. "How Big Banks Fail and What to Do about It," Economics Books, Princeton University Press, edition 1, number 9371.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The right direction
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-11-24 19:36:40

    Citations

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    Cited by:

    1. Eufinger, Christian & Gill, Andrej, 2016. "Incentive-based capital requirements," SAFE Working Paper Series 9 [rev.], Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. DeAngelo, Harry & Stulz, René M., 2015. "Liquid-claim production, risk management, and bank capital structure: Why high leverage is optimal for banks," Journal of Financial Economics, Elsevier, vol. 116(2), pages 219-236.
    3. repec:taf:jeduce:v:47:y:2016:i:4:p:317-323 is not listed on IDEAS
    4. Pies, Ingo, 2015. "Die Ordnungsethik plädiert nicht für maßlose Gier, sondern für eine sorgsame Vermeidung intentionalistischer Fehlschlüsse," Discussion Papers 2015-6, Martin Luther University of Halle-Wittenberg, Chair of Economic Ethics.
    5. repec:wsi:afexxx:v:12:y:2017:i:02:n:s2010495217500087 is not listed on IDEAS

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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