Excessive Leverage and Risk in Banking

Assembled writings on excessive indebtedness, or leverage, in the financial sector and capital regulation, or the regulation of the funding mix, of banks and other financial firms.

The pieces are aimed at multiple audiences and vary in length and presumed knowledge on the part of readers.

To make these pages useful, we first describe the main writings and relate them to one another, then provide a page with links to additional pieces grouped by topic.

Letter to the Financial Times
November 9, 2010

Letter signed by 20 academics endorsing the key policy comments made in the paper titled Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive.

The Leverage Ratchet Effect

Anat R. Admati Peter M. DeMarzo Martin F. Hellwig Paul Pfleiderer
The Journal of Finance
February2018 Vol. 73 Issue 1 Pages 145-198.

Firms’ inability to commit to future funding choices has profound consequences for capital structure dynamics. With debt in place, shareholders pervasively resist leverage reductions no…

Summaries & Updates

Bank Leverage, Welfare, and Regulation

Anat R. Admati Martin F. Hellwig

We take issue with claims that the funding mix of banks, which makes them fragile and crisis-prone, is efficient because it reflects special liquidity benefits…

Summaries & Updates

It Takes a Village to Maintain a Dangerous Financial System

Anat R. Admati
Just Financial Markets? Finance in a Just Society
2017 Pages Ch 13.

The financial system is meant to facilitate efficient allocation of resources, helping people and businesses fund, invest, save, and manage risks. This system is rife…

Summaries & Updates

The Missed Opportunity and Challenge of Capital Regulation

Anat R. Admati
National Institute Economic Review
February2016 Vol. 235 Issue 1 Pages R4-R14.

Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives…

Summaries & Updates
Summaries & Updates
Summaries & Updates
Seeing Through the “Banker’s New Clothes”

Seeing Through the “Banker’s New Clothes”

Anat R. Admati on the continued failure by policymakers to protect the public and reduce the harm from a reckless financial system at TEDxStanford.

Additional Author

Martin Hellwig
Director of the Max Planck Institute for Research on Collective Goods, Bonn