Is the Basel Committee simply insane?

Sir in “An Explanatory Note on the Basel II IRB Risk-Weight Functions" of July 2005 posted by the Basel Committee we read “Interest rates, including risk premia, charged on credit exposures may absorb some components of unexpected losses, but the market will not support prices sufficient to cover all unexpected losses.”

And since we then cannot see the Basel Committee taking in account the “risk premia” charged by the markets because of perceived differences in risk, when calculating the risk-weights used for the capital requirements of banks, we find us facing the distinct possibility that the Basel Committee completely, 100%, ignored the markets.

If so that would explain how they could have so counterfactually stimulated the banks so much to invest or lend to what is perceived as having low risk, like what is rated triple-A.

If so, since the higher interest rates they need to pay would then not count for anything that would help to explain why the regulators so odiously discriminate against those perceived as “risky”, like the unrated small business and entrepreneurs.

And if this is what the Basel Committee really did… then it is simply insane!