The risk weighted capital requirements for banks should have had to consider the conditional probabilities... it did not!

What are the conditional probabilities of assets being dangerous to bank systems when conditioned to that bankers have perceived these assets as risky?

Assets perceived by bankers as risky become safer, not riskier.

What are the conditional probabilities of assets being dangerous to bank systems when conditioned to that bankers have perceived these assets as safe?

Assets perceived by bankers as safe become riskier, not safer.

So regulators who base their capital requirements for banks on that what’s perceived as risky is more dangerous to the bank systems than what’s perceived as safe, is that because they have never heard about conditional probabilities?

The risk-weighted capital requirements for banks guarantee especially large exposures, against especially little capital, to what is ex-ante perceived, decreed or concocted as especially safe, dooming our bank systems ex-post to especially large crisis... like that one in 2008.

Here is an aide-mémoire on some of the many mistakes with the risk weighted capital requirements for banks.

And here are some of my early opinions on these regulations, some of them while being an Executive Director at the World Bank, 2002-04

Universities, like Harvard Business School, do have “Conditional Probabilities and Bayes’ rule” on the curriculum. Could it be that professors are kept too busy preparing these courses so to have time to look out at what’s happening in the world? Or could it be that their students never understood them?

PS. Here is my comment that was received by the Financial Stability Board

PS. And here is a very humble home-made youtube comment on this, from 2010