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"Today's banking system, even with proposed reforms, is as dangerous and fragile as the system that brought us the crisis". This forceful position is taken by two academics who have spent their lives studying the financial system.



Why does the bank industry get away with flawed and sometimes downright false arguments?



Professors Anat Admati in the US and Martin Hellwig in Germany, have been dismayed to see that flawed arguments from bankers are winning the debate against reform on both sides of the Atlantic.



Admati and Hellwig make banking easy to understand in their 2013 Princeton University Press book "The Bankers' New Clothes", a highly recommended read for those who believe that bank reform would not harm the economy.



"Can something be done at a reasonable cost to reduce the likelihood of the banks' failing and causing a costly crisis? In one word: Yes.

Will the reforms that have been decided upon achieve this aim? No.

Can we have regulations that greatly increase the health and safety of the system while still allowing banks to do everything the economy needs them to do? Yes.

Would we, as a society, have to sacrifice anything substantial to have a better banking system? No".



They believe that some measures can bring large effects, such as reform that leads banks and other financial institutions to rely much less on borrowing to fund their investments. More generally the key is to provide better incentives for market participants so that bankers' actions will be less in conflict with the public interest.



Both authors claim that banking is not difficult to understand but requires learning the precise meaning of some terms in order to understand the sometimes deliberately impenetrable jargon of bankers. "You do not need any background in economics, finance, or quantitative fields to read and understand this book".



They believe that having a better and safe financial system requires better understanding from policy makers and the public to challenge the bankers' accounts as well as the political will to implement change. Enabling more people to understand the issues will make politicians and regulators more accountable to the public.



Now if you are wondering if this message is still valid, read a September 16 2013 FT article "Tapering threatens a stormy outlook for America" by Sheila Bair .

Sheila Bair was the very respected Chairman of the Federal Deposit Insurance Corporation 2006-11, a US Federal organization ensuring that "Each depositor insured to at least $250,000 per insured bank" and is author of ‘Bull by the Horns’ and account of the Financial Crisis.