ChatGPT OpenAI: What’s more dangerous to bank systems assets perceived as risky turning out risky, or assets perceived as safe turning out risky?
I asked ChatGPT:
"What’s more dangerous to bank systems assets perceived ex ante as risky turning out risky ex post, or assets perceived ex ante as safe turning out risky ex post?"
ChatGPT answered:
"Both types of assets can be dangerous to bank systems, but assets that are perceived as safe but turn out to be risky ex post can be particularly dangerous.
When a bank invests in assets perceived as risky, it is aware of the potential risks and should be taking steps to manage and mitigate those risks. However, when a bank invests in assets perceived as safe but turns out to be risky ex post, it may not have taken sufficient precautions to manage those risks, and the losses can be unexpected and severe.
For example, during the 2008 financial crisis, many banks had invested in mortgage-backed securities that were perceived as safe because they were rated AAA by credit rating agencies. However, when the underlying mortgages began to default at higher rates than expected, the value of these securities plummeted, causing significant losses for banks that held them.
In contrast, when a bank invests in assets perceived as risky and they turn out to be risky ex post, the bank may have already factored in potential losses and taken steps to manage the risks. Of course, it is still important for banks to carefully manage their exposure to risky assets and have strong risk management practices in place to minimize potential losses."
Note: The answers are copied exactly from those given to me by ChatGPT
Note: I fully agree!
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