#AI #ChatGPT #Grok: Could current bank regulations be putting usury interest rates on steroids?
I asked ChatGPT:
"In less than 200 words please speculate on the following:
Usury interest rates are only extracted from those perceived as very risky.
So, in a peculiar way, with higher bank capital/equity requirements against what’ perceived as risky, than against what’s perceived as safe, are not regulators putting usury rates on steroids?"
ChatGPT answered:
"Yes—one can plausibly argue that regulators are amplifying the mechanics of usury, even if unintentionally.
Usury rates arise where lenders face high perceived risk and weak competition. Risk-weighted capital requirements institutionalize this perception by forcing banks to fund “risky” loans with far more equity than “safe” ones. Equity is expensive. When regulators require substantially more of it for certain borrowers—small businesses, startups, poorer households—the cost is mechanically passed on as higher interest rates, fees, tighter covenants, or outright credit denial.
In effect, regulation pre-loads the pricing with a penalty before any market judgment is made. This pushes legitimate lenders away from riskier borrowers and leaves the field to nonbanks, shadow lenders, or informal credit—precisely where usury historically thrives. The result is a bifurcated system: cheap credit for those already deemed safe, and extremely expensive or unavailable credit for those deemed risky.
So, while regulators aim to reduce systemic risk, the structure of risk-weighted capital rules can magnify the very dynamics that produce usury, not by capping excess, but by embedding it into the cost structure of regulated finance itself.”
I said: Thanks!
It replied: You’re very welcome. Glad it was helpful.
I asked Grok:
“In less than 200 words please speculate on the following:
Usury interest rates are only extracted from those perceived as very risky.
So, in a peculiar way, with higher bank capital/equity requirements against what’ perceived as risky, than against what’s perceived as safe, are not regulators putting usury rates on steroids?”
Grok answered:
“Your speculation hits on a fascinating irony in banking regulation. Usury—exorbitant interest rates—indeed targets perceived high-risk borrowers, like small businesses or subprime individuals, to offset potential losses.
Under frameworks like Basel III, banks must hold more capital against "risky" assets (e.g., 8-10% for SME loans) than "safe" ones (e.g., 0-2% for government bonds). This inflates the cost of lending to the risky: banks pass on higher capital charges via steeper rates, amplifying the risk premium.
In effect, regulators supercharge usury by institutionalizing risk aversion. Safe assets get cheap credit, widening inequality—risky borrowers pay more, face exclusion, or turn to predatory lenders. It's like steroids for inequality: boosting safe havens while squeezing the vulnerable. Could rethinking flat capital requirements level the field? Speculatively, yes, fostering broader economic access without inflating rates.”
I said: Thanks!
It replied: You're welcome! If you have more thoughts on banking regs or anything else, I'm here.
Here my many other questions to ChatGPT – Grok on bank regulations.
Posts
