Many bankers insist that more equity on bank balance sheets would crimp their ability to lend. Sure, they will impose rigorous covenants on nonfinancial corporate borrowers that operate with less than 40 percent equity, but 13 percent for the banks’ own looks more than ample to JPMorgan Chase chairman Jamie Dimon. Of the extra cushion, he says, “this is capital that we don’t need.”

Nonsense, says Anat Admati, the George G.C. Parker professor of finance and economics at Stanford University. Who are bankers kidding? It is high leverage, flawed regulation and compensation structures in banking — not more equity — that curtails lending capacity.

Admati is a co-author of “Debt Overhang and Capital Regulation” with Stanford University colleagues Peter DeMarzo and Paul Pfleiderer and Martin Hellwig from the Max Planck Institute in Bonn, Germany. They published the research paper in March, a sequel to earlier research. Their recent conclusion: “High equity requirements for banks bring about large benefits at essentially no relevant social cost. Banks funded with much more equity would be able to serve the economy better, without subjecting it to excessive risks and costs.”

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