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Towards a Better Financial System

This essay was prepared as part of the Economics for Inclusive Prosperity (EfIP) series of policy briefs. Anat Admati, is from the Graduate School of Business, Stanford University. I am grateful to Dani Rodrik and Graham Steele for helpful comments.

The financial system is fragile and distorted because current rules fail to counter the distorted incentives by banking institutions to borrow excessively and to remain opaque. Better-designed rules to reduce the reliance on debt and ensure that institutions use significantly more equity would enable the financial system to serve society better. Revising counterproductive tax and bankruptcy codes that, together with the extensive safety net offered to the financial system currently encourage dangerous conduct, would also be beneficial.

Author(s)
Anat Admati
Publisher
Economics for Inclusive Prosperity (EfIP)
Publication Date
January 5, 2019