The risk weighted capital requirements for banks should have had to consider the conditional probability... it did not!
What is the conditional probability of assets being dangerous to bank systems when conditioned to that bankers have perceived these assets as risky?
What is the conditional probability of assets being dangerous to bank systems when conditioned to that bankers have perceived these assets as safe?
Here is an aide-mémoire on some of the many mistakes with the risk weighted capital requirements for banks.
PS. Here’s the opinion of #AI ChatGPT – OpenAI on this issue.
PS. And below a humble home-made youtube comment on this, from 2010