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In a New York Times op-ed piece last weekend, Anat R. Admati, a professor of finance and economics at the Stanford Graduate School of Business, added his voice to the chorus of those warning about the continuing systemic threat to the economy from the Too-Big-To-Fail banks. Admati makes two main points: The large banks, both in the U.S. and around the world, are highly-leveraged, with liabilities typically reaching 90% (or more) of their assets; the bulk of these liabilities are borrowed funds (which includes deposits). Admati points out that, in contrast, non-financial sector businesses rarely exceed a 70% debt-to-asset ratio, and many very successful enterprises carry a much lower debt burden.

This leads to Admati’s second point- capital requirements for the banks need to be much higher. “We will never have a safe and healthy global financial system until banks are forced to rely much more on money from their owners and shareholders to finance their loans and investments”, is the way he puts it.  In the current context, risk management by bankers is problematic.

Given a craven Congress that prostitutes itself to the financial services industry, and relentless pushback from the banks, even the mild reforms of Dodd-Frank inch forward at a glacial pace. That should not be surprising, given that we have not yet witnessed the one event that would be most effective in changing the banks’ behavior: Bank executives in orange jumpsuits.