Odd Lots Anat Admati on How to Never Bail Out Banks Again
Mar 4, 2024
Anat Admati, a professor at Stanford Graduate School of Business and a vocal advocate for banking reform, dives deep into the lessons learned from the recent banking crises, especially the Silicon Valley Bank collapse. She discusses why bank bailouts persist and critiques the structural incentives that lead banks to act differently from other businesses. The conversation also touches on the necessity for higher capital ratios, the implications of new banking regulations, and the ongoing competition with alternative lenders.
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Bank Capital
- "Holding capital" doesn't mean banks hoard cash.
- It means investors hold equity, which banks resist.
Leveraged Business Model
- Banks, unlike other businesses, are inherently leveraged due to deposits.
- This creates a conflict between bankers and depositors regarding risk.
Equity Aversion
- Banks dislike equity, preferring leverage and the subsidies it brings.
- This creates a risk imbalance where someone else bears the downside.
