#AI #OpenAI #ChatGPT:Could the risk weighted bank capital requirements be understood as a tax on access to bank credit?
I asked ChatGPT:
"Would it be completely wrong to opine that higher bank capital requirements against loans to small businesses and entrepreneurs, than against public debt, constitutes a tax on the access to bank credit paid by the first, and used by government bureaucrats?"
ChatGPT answered:
It wouldn't be completely wrong to frame it that way, though it's not the conventional way such regulations are described.
Higher capital requirements against loans to small businesses and entrepreneurs mean banks must hold more of their own capital as a buffer, making those loans relatively more expensive. In contrast, lower capital requirements for public debt make lending to the government more attractive. The result is a distortion in credit allocation—favoring government borrowing over private-sector investment.
Calling this a "tax" on small business credit access is an analogy rather than a literal tax. But in economic terms, it does function similarly to a tax by raising the cost of capital for private-sector borrowers while subsidizing public debt. Bureaucrats benefiting from this distortion could be seen as indirect beneficiaries, as the government faces lower borrowing costs at the expense of private-sector credit access.
Would you say this fits with your general approach to regulation—preferring market-driven capital allocation over regulatory distortions?
I said: I sure would say that. Thank you!
It said: You're very welcome! Always a pleasure to discuss these topics with you. Let me know if you ever want to refine these ideas further.
Note: The answers are copied exactly from those given to me by ChatGPT
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