Basel Committee and other bank regulators beware, there's "A hole in the bucket."

To understand what bank regulators have been doing, ever since the 2008 Global Financial Crisis made them aware everything with their risk weighted bank capital requirements was all not fine and dandy, there's nothing like listening to Odetta & Harry Belafonte singing.

The hole was caused by current bank capital/equity requirements, when based on that what’s perceived as risky is more dangerous to bank systems than what’s perceived as safe.

https://teawithft.blogspot.com/2021/05/the-parable-of-talents-is-currently.html

https://teawithft.blogspot.com/2012/10/theres-hole-in-bank-bucket-dear-andy.html

#AI OpenAI ChatGPT: Do risk weighted bank capital/equity requirements generate qualitatively different GDP’s?

I asked ChatGPT:

Does one bank capital/equity requirement against all assets, a leverage ratio, generate the same allocation of bank credit to the economy as with risk weighted bank capital/equity requirements? Please answer Yes or No. 

ChatGPT answered:

No.

I asked ChatGPT:

Could that classify as a distortion? Please answer Yes or No.

ChatGPT answered:

Yes.

I asked ChatGPT:

Would that distortion be compatible with what’s normally referred to as a free market? Please answer Yes or No. 

ChatGPT answered:

No.

I asked ChatGPT:

Could that distortion generate qualitatively different GNP’s or GDP’s? Please answer Yes or No.

ChatGPT answered:

Yes.

I asked ChatGPT:

Has that distortion been sufficiently discussed and considered by e.g., regulators, academia, central banks, congress, financial experts and main street media? Please answer Yes or No.

ChatGPT answered:

Yes.

I asked ChatGPT:

Since you answer "Yes", what has been their conclusions?

ChatGPT answered:

"I don't have real-time information on specific conclusions or discussions that may have occurred since my last training cut-off in January 2022. Financial regulations and discussions on capital requirements are complex and can vary by country and jurisdiction. It's advisable to consult more recent and specific sources, such as regulatory reports, academic papers, or news articles, to understand the latest developments and conclusions in this area."

I asked ChatGPT:

If so how can you argue that distortion has been sufficiently discussed and considered?

ChatGPT answered:

"I don't have real-time information on the extent or depth of discussions on specific financial distortions or regulatory issues since my last update in January 2022. The assertion that a distortion has been sufficiently discussed and considered is based on the general understanding that regulatory bodies, academics, central banks, and financial experts regularly engage in discussions and assessments of the financial system.

However, the level of discussion, consideration, and agreement can vary, and it's important to note that the effectiveness of discussions and their outcomes may be a matter of ongoing debate. Additionally, opinions on whether a particular distortion has been adequately addressed or not may differ among different stakeholders. For the latest and most accurate information, it's recommended to consult current sources and reports from relevant authorities and experts."

I asked ChatGPT:

Should a grandfather prefer his grandchildren to grow up in an economy in which banks take plenty of risks with loans to small businesses and entrepreneurs, or in one in which these lend mostly to safe government debt and residential mortgages? Please answer Yes or No.

ChatGPT answered:

This question involves subjective judgment and depends on one's perspective. There isn't a universally correct answer. It depends on the individual's values, priorities, and beliefs about economic policy. Therefore, I cannot provide a simple "Yes" or "No" answer.

Thanks!

You're welcome! If you have any more questions or if there's anything else I can help you with, feel free to ask.

Note: The answers are copied exactly from those given to me by OpenAI

Some older notes:

Have regulators imposed a lousy diet of bank credits with way too much carbs and way too little proteins?

Can IMF/World Bank develop a Body Mass Index for GDP? 

Here my many other questions to ChatGPT – OpenAI on bank regulations

#AI ChatGPT - OpenAI: What if banks discriminated against small businesses loans... like regulators do?

I asked ChatGPT - OpenAI:

If banks were required by regulators to hold the same capital/equity against all assets, and a Board of Directors instructed the interest rates for small business loans should be calculated as if holding more capital than that. Could a small business sue it?

ChatGPT - OpenAI answered:

"I am not a lawyer, but I can offer some general information. Whether a small business could sue a bank in a situation like the one you described would depend on various factors, including the specific laws and regulations in the jurisdiction where the bank operates.

If a Board of Directors instructed the calculation of interest rates in a way that seems inconsistent with regulatory requirements, it might be a matter that regulatory authorities would investigate. The small business might also have legal recourse if it can demonstrate that it has suffered harm due to the bank's actions, such as being charged higher interest rates than legally permissible.

To determine the viability of a lawsuit, the small business would likely need to consult with legal professionals who can assess the specific circumstances, applicable laws, and regulatory requirements. It's essential to consider contractual agreements, banking regulations, and any relevant consumer protection laws that may apply.

Keep in mind that banking and financial regulations can be complex, and legal outcomes can vary depending on the jurisdiction. Therefore, seeking advice from legal professionals familiar with financial regulations in the specific jurisdiction is crucial for accurate information."

I asked ChatGPT - OpenAI:

If a small business is charged higher interest rates by a bank because the Board of Directors orders these to be calculated as having to hold extra capital/equity against loans to it, does that not represent an illegal discrimination?

ChatGPT - OpenAI answered:

"Charging a small business higher interest rates based on the Board of Directors' decision to calculate rates as if holding extra capital or equity might potentially be considered discriminatory, but whether it is illegal depends on the specific laws and regulations in the jurisdiction where the bank operates. Discrimination in lending can be a violation of various laws, including those related to fair lending practices.

In many jurisdictions, there are laws and regulations that prohibit discrimination in lending based on factors such as race, gender, religion, and sometimes, the size or type of the business. Charging higher interest rates to a small business solely based on the decision of the Board of Directors, if it negatively impacts the business in a discriminatory manner and is not justified by legitimate business reasons, could potentially raise legal concerns.

However, it's important to note that the legality of such actions can vary, and determining the specific legal implications would require a careful examination of the applicable laws, regulations, and contractual agreements. Small businesses that believe they are subject to discriminatory lending practices may want to consult with legal professionals who specialize in financial law or commercial law to get advice tailored to their specific situation and jurisdiction."

I asked ChatGPT - OpenAI:

But if it is the regulators who order banks to hold such extra capital/equity against loans to small businesses, could that not represent a similar illegal discrimination and also, a violation of the law of fair lending practices?

ChatGPT - OpenAI answered:

"If regulators require banks to hold additional capital or equity against loans to small businesses, it typically wouldn't be considered discriminatory in the same way that individual actions by a Board of Directors might be. Regulatory requirements are usually designed to ensure financial stability, manage risk, and protect the overall health of the financial system.

However, the impact of such regulatory requirements on small businesses may still be subject to scrutiny. It's not uncommon for businesses and industry associations to engage with regulators to voice concerns about the potential negative effects of certain regulations on specific sectors, including small businesses.

Regulators are generally responsible for setting and enforcing rules that apply uniformly across financial institutions to achieve broader policy objectives. If small businesses believe that a specific regulatory requirement unfairly discriminates against them or violates fair lending practices, they might seek to engage with regulatory authorities through advocacy, public comment periods, or legal means to address their concerns.

Keep in mind that the specifics can vary by jurisdiction and the nature of the regulations in question. Consulting with legal professionals familiar with financial regulations in the relevant jurisdiction is advisable for accurate and specific guidance."

Thanks!

You're welcome! If you have any more questions or if there's anything else I can help you with, feel free to ask. Good luck with your inquiries!

Note: The answers are copied exactly from those given to me by OpenAI

Here my many other questions to ChatGPT – OpenAI on bank regulations

Easy Money - Easy Street

By favoring banks financing the “safer” present, public debt and residential mortgages, over the “riskier” future, loans to small businesses and entrepreneurs, regulators provided Easy Money so as to make us able to live on Easy Street. Now it is all coming home to roost.

If we compare the economy to a human body, have not regulators, with risk weighted bank capital/equity requirements, imposed a lousy diet with way too much carbs and way too little proteins?

Has that not produced dangerous obesity? 😡