Moreover, aside from improving reporting on derivatives, there is a strong argument to be made for restricting actual exposure. Regulators limit the amount that Chase Manhattan and Citibank can lend, so that their loans do not exceed a certain ratio of capital. The regulators do this for good reason: banks have repeatedly shown that they will exceed the limits of prudence if they can. Why, then, does Greenspan endorse a system in which banks can rack up any amount of exposure that they choose—as long as that exposure is in the form of derivatives?
