"You give me a capital requirement, I’ll give you a derivative to skirt it"
Cathy O'Neil, the "Mathbabe," suspects it's true. And history seems to support her.
Admati and Hellwig’s suggestion is to raise capital requirements to much higher levels than we currently have.
Here’s the thing though, and it’s really a question for you readers. How do derivatives show up on the balance sheet exactly, and what prevents me from building a derivative that avoids adding to my capital requirement but which adds risk to my portfolio?