Financial markets, as we all should know by now, have a way of effectively circumventing uneconomic barriers or bottlenecks created by inefficient legislation or regulation. Today, it has become possible, through the judicious use of derivative instruments, for a financial firm engaged primarily in one kind of financial activity to mimic the risks and returns of any other financial activity.
Banking, investment banking, and insurance can no longer be viewed, from a risk-return perspective, as separate and distinct lines of business. To cite just one example, banks are prohibited from underwriting insurance, yet the writing of a put option -- a form of derivative activity engaged in widely by large banks -- is, in economic substance, a form of insurance underwriting.