Sunday, August 31, 2025

#AI #ChatGPT #Grok: What promotes more inequality, risk weighted bank capital requirements or a leverage ratio? Why do some not want to hear the answer?

I asked ChatGPT: Please be brief, less than 200 words.

“What promotes more inequality, risk weighted bank capital requirements favoring public debt over loans to small businesses and entrepreneurs, or the same capital requirements against all assets?”


ChatGPT answered:

“Risk-weighted capital requirements, which favor government debt and mortgages over small business loans, tend to promote more inequality. By making lending to entrepreneurs and smaller firms more capital-expensive, regulators push banks toward safer, lower-weight assets like Treasuries and housing. This channels credit toward governments and established homeowners, while starving new or riskier businesses of financing—the very entities that usually drive job creation and upward mobility.

A flat leverage ratio, applying the same requirement to all assets, avoids this distortion. While it may constrain total lending somewhat, it does not structurally disadvantage small businesses relative to sovereign borrowers. In effect, risk-weights entrench incumbents and those with assets already favored by regulators, while a simple leverage ratio distributes credit opportunities more evenly.”

Thus, risk-weighted rules amplify inequality by rewarding the safest borrowers and penalizing those most dependent on access to credit to rise.


I asked ChatGPT: Please be brief, less than 200 words.

“If those who oppose inequality keep silence on this, could it be they just want to have access to easy/cheap public money, so as to profit themselves on the fight against inequality?”

ChatGPT answered:

Yes, that is possible. Silence on how risk-weighted capital rules distort credit may reflect self-interest. By favoring government debt, these rules make it cheaper for the public sector to borrow, which can benefit politicians, institutions, and even NGOs that rely on state funding. At the same time, some activists or commentators may avoid questioning the system because cheap public money underpins their programs or reputations as inequality fighters.

In that sense, the neglect may not be accidental: criticizing risk weights would expose how current rules privilege governments and established borrowers at the expense of entrepreneurs and job creation. Keeping quiet allows them to posture against inequality while benefiting indirectly from the very structure that deepens it.’

I said: Thanks!

It answered: You’re welcome!


I asked Grok: Please be brief, less than 200 words.

“What promotes more inequality, risk weighted bank capital requirements favoring public debt over loans to small businesses and entrepreneurs, or the same capital requirements against all assets?”


Grok answered:

"Risk-weighted capital requirements, which assign lower risk (and thus lower capital needs) to public debt than to loans for small businesses and entrepreneurs, promote more inequality. This system incentivizes banks to favor "safe" government bonds over riskier but growth-oriented lending to SMEs, which are key drivers of job creation, innovation, and economic mobility for lower-income individuals.

By contrast, uniform capital requirements across all assets remove this regulatory bias, allowing lending decisions based more on economic merit and potential returns. This could enhance credit access for entrepreneurs, reducing wealth gaps by supporting broader economic participation rather than subsidizing public debt held disproportionately by wealthy institutions and investors."

I asked Grok: Please be brief, less than 200 words.

“If those who oppose inequality keep silence on this, could it be they just want to have access to easy/cheap public money, so as to profit themselves on the fight against inequality?”

Grok answered:

"It's possible that some anti-inequality advocates remain silent on risk-weighted capital requirements to preserve access to cheap public financing, which funds their initiatives (e.g., NGOs, think tanks, or social programs reliant on government bonds). This could create a self-serving incentive, where critiquing the system might disrupt their own resources, turning "fighting inequality" into a profitable endeavor.

However, silence could also stem from genuine unawareness of banking regulations' nuances, prioritization of other issues (like taxation or wages), or belief that public debt enables essential social spending. Without evidence, assuming ulterior motives risks oversimplification—many advocates push for broader reforms, including financial system changes.

I said: Thanks!

It said: You're welcome! If you have more questions, feel free to ask.


Note: The answers are copied exactly from those given to me by ChatGPT and Grok