At the kindergarten questions to regulator X about bank lending to Mr. Safe and Mr. Risky

If a bank perceives Mr. Safe as an absolutely safe credit risk, it will probably be willing to lend him much money at a low interest rate. And regulators, sort of just for good measure are currently also willing to allow the bank to lend to Mr. Safe against very little capital (equity), meaning the bank will be able to leverage its capital a lot.

If on the contrary a bank perceives Mr. Risky as a bad credit risk, if it anyhow lends to him, it will be little money, at high interest rates. And regulators, also sort of just for good measure, then currently requires the bank to hold more capital, meaning the bank will be able to leverage much less its capital.

Q. Why on earth should a lot of money lent at low rates to Mr. Safe be safer, or less risky for the bank, than little money lent at high rates to Mr. Risky?

Q. Is the truth not that the risk of banks have nothing to do with the credit risks of Mr. Safe or Mr. Risky, and all to do with how banks lend to Mr. Safe or Mr. Risky which, as they say in French, is pas la meme chose?

Q. Why on earth would bank regulators expect the bank to keep on lending to Mr. Risky if it cannot leverage its equity as much as it is allowed to do when lending to Mr. Safe?

Q. And if banks only lend to the Mr. Safe of this world and avoid all the Mr. Risky, what might become of this world… a safer or a riskier place?