You are here: Home Knowledge Base Financial Regulatory Frameworks: Current Reforms and Future Challenges Virtual Library Running on Empty. Banks should raise more capital, carry less debt—and never need a bailout again
Symposium 2015

Virtual Library File - Running on Empty. Banks should raise more capital, carry less debt—and never need a bailout again

The Challenge

In the aftermath of the global financial crisis, most countries have seen a wave of new regulatory initiatives aimed at increasing financial stability and resilience. However, the implementation of re ...

In the aftermath of the global financial crisis, most countries have seen a wave of new regulatory initiatives aimed at increasing financial stability and resilience. However, the implementation of reforms is still in progress, and financial systems worldwide are far from being immune to another financial crisis.

The implementation of Basel III, for instance, leads to a gradual increase in capital requirements for banks, though many economists still consider these requirements as too low. Another envisioned goal, the partial separation of "traditional" and "hedge" banking, has not yet been achieved. We are also far away from a global harmonization of standards, best practices, and supervision. Moreover, there might even be the temptation to misjudge the partial implementation of regulatory reforms as finished. In fact, we might need more fundamental changes in the structure of the financial sector to prevent a future financial crisis.

In this article, John H. Cochrane presents a review of and thoughts on Anat Admati and Martin Hellwig's book "The Bankers' New Clothes". Admati and Hellwig raise broad critical questions about bank regulation.