The crusade for capital

What Al Gore’s An Inconvenient Truth did for public awareness of global warming, Anat Admati’s forthcoming book aims to do with the neglected issue of bank capital. The Stanford University professor of finance and economics currently is refining a forthcoming book, titled “The Banker’s New Clothes: What’s Wrong with Banking and What to Do About It,” with co-author Martin Hellwig. Admati hopes to inform public citizens and their elected Washington representatives about a basic concept that banks wish to obscure.

Bank capital and global warming are connected. Former Vice President Gore made approachable the foreboding statistics linking human industry with planetary warming. Congress approved some global warming measures in the summer of 2008, but that effort ceased in September, 2008. Why? Because Wall Street’s implosion and the subsequent economic crisis that resulted supplanted all other issues, including global warming.

Congress responded to the financial crash. Among the reforms Congress passed were requirements for increasing capital for banks. This central safeguard should ensure that banks are able to cover their own losses when they make mistakes, thus preventing any need for future taxpayer bailouts. To date, however, proposed increases have been so miniscule as to be meaningless.

Admati believes lawmakers and the general public misunderstand this critical measure. More