#AI ChatGPT – OpenAI: Could current risk weighted bank capital requirements be considered as a regulatory dis-Affirmative Action?

I asked OpenAI:

"The risk-weighted bank capital requirements de facto decree those who perceived as less creditworthy already got less bank credit and paid higher interest rates, to also be less worthy of credit. Could this be labeled a regulatory dis-Affirmative Action?"

OpenAI answered:

"The term "Affirmative Action" typically refers to policies or measures that aim to provide equal opportunities for historically disadvantaged or underrepresented groups. It is generally associated with efforts to address systemic discrimination and promote diversity and inclusion.

The concept you mentioned, regarding risk-weighted bank capital requirements, does not align with the traditional understanding of Affirmative Action. Regulatory capital requirements are part of a broader regulatory framework designed to ensure the stability and soundness of the banking system. These requirements are typically based on the risk profile of the assets held by banks.

While it is true that risk-weighted capital requirements may result in higher costs for borrowers perceived as less creditworthy, their purpose is to account for the higher risk associated with lending to those individuals or entities. The aim is to protect the financial system from potential losses due to credit defaults. These requirements are not intended to discriminate against any particular group but rather to encourage responsible lending practices. It is worth noting that the impact of risk-weighted capital requirements on credit availability and interest rates can vary depending on multiple factors, such as economic conditions, market dynamics, and regulatory policies. However, the primary objective of these regulations is to ensure the stability of the banking system and mitigate risks, rather than to engage in social engineering or affirmative action"

I asked OpenAI:

"I refer to my last question:

If “historically disadvantaged or underrepresented groups” were in fact usually considered as less creditworthy than other groups, could then such bank regulations be considered a dis-Affirmative Action?"

OpenAI answered:

"If historically disadvantaged or underrepresented groups are indeed considered as less creditworthy due to discriminatory practices or biases, and if risk-weighted bank capital requirements exacerbate this disparity by further limiting their access to credit or imposing higher interest rates, one could argue that such regulations have a disaffirmative effect.

While the term "dis-Affirmative Action" is not commonly used, it could be seen as a way to describe policies or regulations that unintentionally perpetuate or worsen existing inequalities or disadvantages. In this case, if the bank regulations contribute to the already existing disparities and hinder the goal of equal access to credit, they could be seen as working against the principles of Affirmative Action.

However, it's important to note that bank regulations, including risk-weighted capital requirements, are primarily designed to maintain the stability and soundness of the financial system. The intention is to mitigate risks and protect depositors and the overall economy. The impact on credit availability and interest rates can be complex and influenced by various factors beyond the regulations themselves.

If there are concerns about the disproportionate impact of such regulations on historically disadvantaged or underrepresented groups, it may be worthwhile to explore ways to address these disparities and promote inclusive access to credit, while still maintaining the necessary safeguards for the financial system."

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

PS. Would SCOTUS consider such dis-Affirmative Action in accordance to the US Constitution?

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

I believe my one line health sector reform to be better than those long ones proposed by democrats or republicans

You, all suppliers of medicines or health services, thou shall not discriminate [with more than perhaps 5%] in the prices offered to those who pay for those insured against the prices demanded from those uninsured.

PS. Not the first time I have written about it

My current list of prominent inequality drivers

I do not care about some having much more wealth than others, for instance having Picasso's on their walls that if taken down only had to go up on somebody else’s wall… and I fret where all those jobs which are based on obnoxiously expensive manual procedures would be were it not for the insanely wealthy… and, if there were no accumulation of wealth where would all those savings that can be invested come from?... 

But I do care profoundly when wealth is acquired by ways of opportunities not accorded to everyone... like mothers (and fathers), not getting any direct monetary societal reward, for their extraordinary efforts when staying home to lovingly take care of their children.

And here are some new non traditional inequality drivers of which I am currently most suspicious.

Intellectual property rights which give way to incredible fortunes… there should be some more explicit limits on these… like a maximum amount of profits covered … a fixed number of units produced protected… or at least that profits derived from intellectually protected activities should be taxed at a higher rate than profits derived from competing naked in the market.

Monopolies… profit derived from monopolies should perhaps be taxed at a higher rate than ordinary profits.

Market shares/globalization… profit derived from activities that have achieved especially large local or global market shares should perhaps be taxed at a higher rate than ordinary profits.

Financial returns produced by the fact that banks because of implicit government guarantees are able to hold less capital than other normal commercial entities should be taxed at a higher rate than ordinary on their profits… something which they could naturally avoid by simply keeping more capital. 

And then there are those regulatory inequity drivers like pushing quantitative easing flows through a banking system with risk-weighted capital requirements, which so much favoring what is perceived as absolutely safe so much discriminates against what is perceived as risky, and something which of course impedes that liquidity and credit gets to where it is needed the most.

And had it not been for bail-outs and QEs Piketty’s book Capital in the 21st Century would not stand a chance to have seen the light as so much wealth would have been wiped out. 

And then there is the wealth tax, which if applied in a system where inequalities like those explained above persist, will only end up concentrating wealth more and more among fewer and fewer Plutocrats.

And, of course, perhaps foremost, all those other sources of discrimination that exist and hinders some from having the same opportunities as others... and all those resulting from the many existing inequalities at the start point.

And the list goes on, and the list goes on.. most likely including the low interests too.

And I also utterly dislike those who are only out to make a buck on the redistribution of wealth. If there is going to be redistribution do it through a system that guarantees that at least 99% goes where it was supposed to go… and that it all does not end in the hands of for equality fighting opportunists

But before ending let me pose the BIG Q.: Professor Thomas Piketty. What’s better, to live in your own inequality, or in somebody else’s equality?

Discrimination based on the financial profiling and risk-based pricing

Risk-based pricing actually requires creating the misinformation that allows for making borrowers who should get lower rates agree to pay the higher rates that cover the losses of those that should not have been given credit… at least not at these high impossible rates.

Risk based pricing, which is similar to placing persons that after some doubtful genetic test are presumed to be especially exposed to an illness in a separate insurance pool, could be causing much of the growing social inequality that is currently attributed by some to globalization. Risk profiling, for a discriminatory purpose, is prohibited in most spheres of our social relations, except in lending where it is very much cheered, by most.

John, Paul and Peter, because of FICO have to pay high interest. John, though he might have been able to do so at lower rates, is not able to service the debt and loses. Paul, utterly responsible, services it, barely, and Peter who is in this group because no ones no why meets the payments with ease. Question: Any winners?

John should for a starter not have been given the credit, at least not at the high rate, and both Paul and Peter, having been able to service the debt at high rates evidenced de facto they merited lower rates. Answer: No winners! Except of course those who are not to be named!

How libertarians can shut up about the financial information cartels that chain the markets to neo-non-transparent-regulations, I have never understood.

How developed countries’ progressives can shut up about the discrimination implicit in risk based pricing and that could be introducing more inequality in the societies than what they sometimes attribute to globalization, I have never understood.