The Bankers' New Clothes: What's Wrong With Banking and What to Do About It

have influenced our thinking and shaped the book. We thank Viral Acharya, Philippe Aghion, Sheila Bair, Mary Barth, Nadine Baudot-Trajtenberg, Jane Baxter, Lawrence Baxter, Urs Birchler, Niklaus Blattner, Jürg Blum, Arnoud Boot, Claudio Borio, Michael Boskin, John Boyd, Dick Brealey, Claudia Buch, Charles Calomiris, John Cochrane, Peter DeMarzo, Thomas Gehrig, Hans Gersbach, Hendrik Hakenes, Andy Haldane, Ian Harrison, Richard Herring, Tom Hoenig, Rob Johnson, Ed Kane, Dennis Kelleher, Mervyn King, David Kreps, Sebastian Mallaby, Maureen McNichols, Hamid Mehran, Allan Meltzer, David Miles, Chuck Morris, Manfred J. M. Neumann, George Parker, Francisco Perez-Gonzalez, Thierry Philipponnat, John Plender, Barbara Rehm, Isabel Schnabel, David Skeel, Chester Spatt, Ilya Strebulaev, Martin Summer, Elu von Thadden, Adair Turner, Jim Van Horne, Larry Wall, Beatrice Weder di Mauro, Juli Weiss, Mark Whitehouse, Martin Wolf, Daniel Zimmer, and Jeff Zwiebel. Some of them may disagree with our views, but all of them have contributed to the book with their insights.
    In the book we are critical of politicians and regulators, but many do not fit our characterizations. Our thinking has been influenced, in particular, by serving on policy committees. We are grateful for the opportunity provided by these committees to apply academic thinking to practical questions and to discuss the issues with politicians and administrators, central bankers and regulators, corporate executives, and other academics.
    An important predecessor of this book was “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is Not Expensive,” a paper that we wrote jointly with Peter DeMarzo and Paul Pfleiderer from Stanford in the summer of 2010. This paper was addressed to professionals involved in the policy debate about banking regulation. Our subsequent experience in this debate suggested that we should try to make the ideas in the paper available to a wider audience. This book is the result. While writing the book, we also did more research with Peter DeMarzo and Paul Pfleiderer, which led to a sequel article, “Debt Overhang and Capital Regulation,” on which the book also draws.
    Writing a book when one author is located in California and the other in Germany requires not only time but also support for travel and communication. We are grateful to the Stanford Graduate School of Business and the Max Planck Institute for Research on Collective Goods in Bonn for providing this support. We are also grateful for support from the German Federal Ministry of Education and Research through the Max Planck Research Award 2012.
    Research assistants Siddhartha Basu, Matthew Haney, Josh Loud, Michael Ohlrogge, Lucas Puente, Estefania Molina Ungar, Zach Wang, and Yizhou Xiao were very helpful with the endnotes and references. We are also grateful to our assistants, Mandy Ferrero and Monika Stimpson, for their invaluable logistical, administrative, and other support.
    Seth Ditchik and Peter Dougherty from PUP gave us many useful suggestions that improved the book. We thank them and everyone else at PUP and at Princeton Editorial Associates for their encouragement, patience, and help with the numerous edits.
    Finally, and most importantly, our families—especially our spouses, David Kreps and Dorothee Hellwig—have endured many months of stress and absences while we have focused intensely on writing and communicating about this book. We are immensely grateful for their understanding and support.

THE BANKERS’ NEW CLOTHES

PART ONE
    Borrowing, Banking, and Risk

PART TWO
    The Case for More Bank Equity

PART THREE
    Moving Forward

REFERENCES
    Academic Advisory Committee. 2010. “Reform der Bankenregulierung und Banken-aufsicht nach der Finanzkrise” (Reforming Banking Regulation and Banking Supervision after the Financial Crisis). Report to the German Federal Ministry for Economics and Technology, Berlin. May. http://www.bmwi.de/DE/Mediathek/publikationen,did=344680.html .
    Acemoglu, Daron, and James Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishers.
    Acharya, Viral, and Matthew Richardson. 2009. Restoring Financial Stability. New York: John Wiley and Sons.
    Acharya, Viral V., and Sascha Steffen. 2012. “The ‘Greatest’ Carry Trade Ever? Understanding Eurozone Bank Risks.” Working paper. Stern School of Business, New York University, New York, and European