AI - ChatGPT - Grok: With Basel Committee’s risk weighted bank capital/equity requirements, would the “developed world” have developed?

2003, during a Risk Management Workshop for Regulators at the World Bank, as an Executive Director, I made the following statement:

"The other side of the coin of a credit that was never granted, in order to reduce the vulnerability of the financial system, could very well be the loss of a unique opportunity for growth. In this sense, I put forward the possibility that the developed countries might not have developed as fast, or even at all, had they been regulated by a Basel [Committee]."

Fast forward, below is the artificial intelligence’s opinion on that:

I asked ChatGPT: In 200 words or less please opine on:

"If instead of 1988, one year before the fall of the Berlin Wall, Basel Committee risk weighted bank capital/equity requirements had been imposed 1788, one year before the French Revolution, would what’s known as the developed world, have developed?"

ChatGPT answered:

"Had Basel-style risk-weighted bank capital rules been imposed in 1788, the “developed world” as we know it is unlikely to have developed.

Those rules systematically privilege lending to the sovereign and to politically favored, asset-backed borrowers, while penalizing credit to entrepreneurs, merchants, and small producers—the very agents who drove the Industrial Revolution. In 18th-century Europe, development depended on risk-taking: financing canals, mills, shipping ventures, workshops, and technological experimentation, most of which lacked collateral and state guarantees. Basel logic would have labeled such activity “high risk” and forced banks either to ration credit or charge prohibitive terms.

By contrast, cheap capital to governments would have reinforced mercantilist states, war finance, and court consumption, not productivity growth. Innovation would have migrated even more toward informal finance or remained unrealized altogether."

I said: Thanks!

It replied: You’re very welcome. Glad it was useful.

I asked Grok: In 200 words or less please opine on:

"If instead of 1988, one year before the fall of the Berlin Wall, Basel Committee risk weighted bank capital/equity requirements had been imposed 1788, one year before the French Revolution, would what’s known as the developed world, have developed?"

Grok answered:

"No, the developed world likely wouldn't have developed as rapidly or extensively. In 1788, Europe and emerging economies relied on nascent banking systems to fuel the Industrial Revolution, colonial expansion, and infrastructure booms. Banks like the Bank of England (1694) operated with minimal capital constraints, enabling aggressive lending for risky ventures—canals, factories, trade—that drove growth.

Imposing Basel I-style risk-weighted capital requirements (e.g., 8% equity against assets) would have forced banks to hold more reserves against "risky" loans, curbing credit availability. Historical evidence from post-1988 shows such rules reduced lending to SMEs and high-risk sectors, slowing innovation. In the 19th century, unchecked banking fueled booms (and busts), but overall propelled GDP growth; strict rules might have stifled railways, steam power, and urbanization.

While preventing some crises (e.g., fewer panics like 1797), the trade-off would be stagnation—think slower tech adoption, delayed imperialism's wealth transfer. Development required risk; Basel's caution in 1788 could've left the "developed world" agrarian and fragmented."

I said: Thanks.

It replied: You're welcome! Glad you enjoyed the take.

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

Here my many other questions to ChatGPT – Grok on bank regulations.

 

AI - ChatGPT – Grok: Do the Basel Committee’s risk weighted bank capital/equity requirements align with the Western Civilization?

I asked Chat GPT: 

"The Western Civilization, does it align with the risk aversion expressed in the Basel Committee’s risk weighted bank capital/equity requirements; lower against public debt and residential mortgages, than against e.g., loans to small businesses and entrepreneurs?:

ChatGPT answered: 

"Short answer: No — not in any coherent historical or philosophical sense.

Western Civilization, at its core, has been defined by risk-taking, entrepreneurship, commercial expansion, and institution-building that channels risk toward productive innovation. The Basel risk-weight regime, by contrast, structurally penalizes entrepreneurial risk-taking and privileges sovereign borrowing and housing finance — the opposite of what made the West economically dynamic.

Here’s the alignment question in clearer terms:

1. Western civilization historically rewards productive risk

From ancient Greek commercial ventures, to Venetian merchant finance, to the Dutch and British commercial revolutions, to American frontier capitalism, a central feature has been:

Taking calculated risks in commerce

Financing innovation

Backing entrepreneurs

Diversifying private, not sovereign, credit

The Western success model was never built on routing capital toward the state or into socially favored, low-volatility assets at the expense of enterprise. If anything, too much preference for sovereign borrowing was historically a warning sign of decline (e.g., late-Habsburg Spain, ancien régime France).

2. Basel’s risk weights do the opposite

The Basel framework assigns negligible capital requirements to:

sovereign debt

residential mortgages

…while assigning much higher requirements to:

small-business loans

SME working capital

entrepreneurial credit

This means banks must hold more equity to lend to the things that historically propelled Western growth, and less equity to lend to governments and housing — sectors that expand balance sheets but do not elevate productivity.

This is risk-aversion, but it is risk aversion of a peculiar type:

It avoids short-term credit losses

It shifts banks toward politically safe assets

It discourages lending to innovators, builders, and strivers

In essence, it tilts the financial system away from the very activities that built Western prosperity.

3. Thus, Basel risk-weights reflect bureaucracy, not Western civilizational values

Basel preferences align with:

regulatory conservatism

political incentives of governments to finance themselves cheaply

a post-crisis desire to avoid bank failures at all costs

They do not align with:

Freedom to take intelligent risks

decentralized economic dynamism

entrepreneurial experimentation

the Western tradition of empowering individuals and businesses over consolidated state power

4. If anything, Basel’s design subtly erodes Western strengths

By favoring sovereign debt and residential mortgages, Basel:

inflates government balance sheets

channels savings into housing inflation rather than innovation

weakens SMEs (the backbone of Western labor markets)

reduces long-run productivity growth

gradually replaces competitive capitalism with “bank-regulated capitalism”

This is closer to bureaucratic risk minimization than to the cultural DNA of Western society.

Conclusion

Western Civilization is built on the managed embrace of risk. The Basel risk-weight structure is built on the avoidance and bureaucratic control of risk.

So no, they don’t align — and in important ways, Basel may undermine the very dynamism the West historically relied upon."

I said: Thanks!

It replied: You're welcome! 

I asked Grok

"The Western Civilization, does it align with the risk aversion expressed in the Basel Committee’s risk weighted bank capital/equity requirements; lower against public debt and residential mortgages, than against e.g., loans to small businesses and entrepreneurs?"

Grok answered:

"The Basel Committee’s risk-weighted capital requirements are fundamentally anti-Western in spirit, and represent a profound betrayal of the core dynamics that built Western civilization.

Western civilization— from the Athenian entrepreneur financing a trireme trading venture, to the Venetian merchant banks, to the Dutch East India Company, to Henry Ford mortgaging his house to build the Quadricycle, to Silicon Valley garages — has always advanced through calculated risk-taking by individuals, not through risk-aversion channeled toward the state and its favored assets.

The Basel framework does the exact opposite. It deliberately makes it artificially expensive for banks to lend to the very people who drive civilizational progress:

A loan to an unrated entrepreneur or small/medium business: 100–150% risk weight (or even higher under IRB models for “riskier” profiles). 

A residential mortgage: 35% risk weight (sometimes lower with mortgage insurance). 

Debt of the sovereign (i.e. the government that regulates the banks and appoints the regulators): 0% risk weight, even when that government is running chronic deficits and has debt/GDP ratios that would make any private borrower unbankable.

This is not a neutral, technocratic assessment of risk. It is a political decision to subsidize two things above all else:

State borrowing (allowing governments to spend and borrow without market discipline). 

Housing as an asset class (turning homes from places to live into leveraged financial instruments for the middle and upper classes).

Both are profoundly conservative in the literal sense: they preserve existing wealth and existing power structures. They direct capital toward already-owned assets (land, existing houses, government bonds) and away from new wealth creation (new businesses, innovation, frontier technologies).

This is the opposite of the Western tradition. The West became wealthy precisely by punishing cowardice and rewarding courage. The Basel system does the reverse: it punishes banks for taking the same kind of risk that built the West, and rewards them for lending to the safest, most politically connected borrowers.

Look at the real-world results since Basel II/III:

Explosive growth in sovereign debt (now over 120% of GDP in many Western countries — levels that used to be considered emerging-market territory). 

Chronic housing bubbles and young people locked out of home ownership or forced into lifetime debt servitude. 

Stagnant productivity growth and the slowest startup formation rates since the 1970s in the US. 

European banks loaded with peripheral sovereign debt in the 2010s, nearly causing systemic collapse when markets finally called the bluff.

Every great leap in Western living standards — the Commercial Revolution, the Industrial Revolution, the post-WWII economic miracle, the internet era — was driven by private risk-takers borrowing money to do something new and unproven. The Basel regime systematically starves exactly that activity of capital.

So no, the Basel risk-weighting philosophy does not align with Western civilization.

It aligns far more closely with late Roman Empire bread-and-circuses financed by debasing the currency, or with French ancien régime privilege, where the state and landed aristocracy borrowed at low rates while entrepreneurs were crushed by taxes and restrictions.

In short: the Basel Committee’s risk weights are anti-entrepreneurial, pro-state, and pro-incumbent asset owner — which is to say, they are anti-Western in the deepest sense.

A genuinely Western banking regulation would do the opposite: higher capital charges for sovereign debt and mortgages, lower for loans to new businesses and innovators. Anything else is civilizational suicide dressed up as prudence.”

I said: Thanks

It replied: You're welcome! I'm genuinely glad the analysis hit the mark — it's a topic that deserves far more outrage than it gets.

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

Here my many other questions to ChatGPT – Grok on bank regulations.

PS. Please award the 2026 Nobel Memorial Prize in Economic Sciences to ChatGPT and Grok. 

https://x.com/PerKurowski/status/1996870656542330994

That way we will have a chance to turn our parking lots into a paradise again, and to anew ignite the flame that's so much needed to light up the darkness.

God make us daring!