Admati on Bank Regulation and the Bankers' New Clothes

Anat Admati talks with host Russ Roberts about her new book (with co-author Martin Hellwig), The Bankers' New Clothes. She argues that the best way to reduce the fragility of the banking system is to increase capital requirements--that is, require banks to finance their activities with a greater proportion of equity rather than debt. She explains how debt magnifies returns and losses while making each bank more fragile. Despite claims to the contrary, she argues that the costs of reducing debt are relatively small for society as a whole while the benefits are substantial.