During a panel discussion earlier this month, Martin Hellwig and Anat Adnati, the professor-authors of the book “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It,” talked about financial reform in Europe.
Hellwig said that Simon Johnson, an entrepreneurship professor at the Massachusetts Institute of Technology, spoke about the next financial crisis as if the current one had passed, warning that a number of “zombie” banks still exist across Europe, Money News reports.
Hellwig said that some banks in Germany, including Deutsche Landesbank, should be resolved, criticizing the German model of financial relief, which he said involves providing guarantees without governing banks. He also said that a key problem in Germany and the European Union is banking overcapacity, adding that the industry has not made adjustments.
Additionally, Hellwig said that the EU’s policy is “marked in forbearance and obfuscation,” saying that he would employ the same model used by Sweden in 1992 to take control of banks and resolve them in order to establish a stable bank to restore control, according to Money News.
Adnati echoed Hellwig’s concerns, saying that bankers have acted towards borrowing as an addict would. She said that the banking industry is too opaque, badly-regulated and reliant on short-term debt, making the true reality of the situation unclear.
Adnati also said that solvency issues are falsely presented as liquidity problems to be solved by providing more funds to banks as regulators cave in to political pressures. Adnati advocated an increase in capital levels to at least 25 percent without accounting for exposures from derivatives, Money News reports.