Why Banks Still “Own the Place” Anat Admati Stanford University Stigler Center, Chicago Booth December 2, 2015 https://www.gsb.stanford.edu/faculty-research/excessive-leverage http://bankersnewclothes.com/ What’s Wrong with Banking? • System is too fragile and inefficient due to – Opacity, complexity, and interconnectedness – Excessive reliance on (short term) debt – Severe governance problems and distortions that are not solved in markets. • Flawed laws and regulations. • Politics and lack of accountability. Size of 28 Global Banks 2006: $37.8 trillion total 2013: $49.2 trillion total Average Average $1.35 trillion $1.76 trillion Sources: SNL Financial, FDIC, bank annual reports, Bank of England calculations. The Largest Corporations in the World by Asset Size (Forbes, 5/2014) Derivatives for 21 Banks 2006: $409 trillion (notional) 2013: $661 trillion (notional) Average Average $31 trillion $19 trillion Sources: SNL Financial, FDIC, bank annual reports, Bank of England calculations. Global Banking Network (Cross-Border Banking Claims) IMF Global Stability Report, April 2014 “Shadow Banking,” Pozsar, Adrian, Ashcraft and Boesky, 2010 The US System IMF Financial Stability Report 10/2014, Figure 2.1.1