Robert Myerson, a Nobel Prize winner, has written a review of The Banker’s New Clothes, by Admati and Hellwig. The review focuses on the politics of bank regulation. However, capital regulation has become more technical and complex and, more and more, we are asked to simply rely on the expertise of the regulators, since we cannot rely directly on the disclosures provided by the banks. An interesting quote: “If there are abstruse financial transactions that generate risks which cannot be adequately represented in standard public accounting statements, then perhaps such transactions should be off limits for banks that are in the business of issuing reliably safe deposits.”
How, then, can regulators monitor banks?
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