The Banker’s New Clothes: Banking Influence on Macroeconomics

Upon reading Simon Wren-Lewis’s blog post this past week I stumbled across several websites, articles,  and videos pertaining to economic faults as a results of risky banking practices. I was initially directed to this website http://bankersnewclothes.com/ which then lead me to to other sources. I found a lot of the information to be interesting so I figured I would write a brief blog post to share it with you all!

Anat Admati, the main contributer to the works I found, is the George G.C. Parker Professor of Finance and Economics at
the Graduate School of Business, Stanford University. She has written a book called The Banker’s New Clothes, which takes an in-depth look at risks in banking and how those risks can impose significant costs on the economy. “Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises” (Admati). The role of the financial & banking sector is something that I have been looking into the past few weeks; Admati has a lot to contribute to solve a problem that authors we all have encountered so far, Farmer and Wren-Lewis, have talked about. In my previous blog post Wren-Lewis talked about how an increase in bank capital requirements can help avoid future banking crises, which is an idea that Admati has proposed and researched.

I have also linked two short videos below that explain Admanti’s and her colleague Martin Hellwig’s take on the banking system and its influences on the macroeconomy.

Short Video: https://www.youtube.com/watch?v=ZDRpZvCOVrc

StanfordTedx Presentation: https://www.youtube.com/watch?v=s_I4vx7gHPQ