Anat R. Admati, Martin F. Hellwig

Feb 2024

Working Paper

The debate on banking regulation has been dominated by flawed and misleading claims. Such claims provided the basis for poorly designed rules. Despite experiences like the 2007-2009 financial crisis, the rules have not been changed much, and the financial system has remained unconscionably fragile. The fragility was in evidence in the spring of 2023, and it persists today.

In our book The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It, first published in 2013, we discussed many flawed claims and reviewed their significance in the context of the 2007-2009 financial crisis. A new and much expanded edition, including developments until May 2023, is coming out in early 2024.

Bankers, policymakers, academics, and others have continued to make the same flawed claims we debunked in our book, and some new ones, including in current policy debates. This document provides an overview of flawed claims with brief rebuttals and references to more detailed arguments. The first version of this document, put out in 2013, discussed 23 flawed claims this new version 44 flawed claims.

The persistence of flawed claims and poorly designed and inadequate rules reflects the politics of banking. Public debate should be based on the principle that it matters whether something is true or not. To ensure that it matters in public debate whether something is true or not, enough people must overcome the temptation to be willfully blind to truth.

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