In contrast, many banks appeared to have been set up largely to take advantage of the arbitrage opportunities in the foreign exchange market, rather than undertake more conventional/traditional banking business.
Bank management face an incentive to convince regulators that the level of capital consistent with that demanded by depositors to protect them (rating capital) is also the socially optimal level of capital. Enter the so-called hybrid or innovative capital instruments that the market prices as debt and regulators often count as capital. This device seeks to provide regulatory capital at levels above economic capital.