Financial pricing-illogical, opaque and unfair?

Return is proportional to risk taken. This basic 'tenet' of finance is honored more in the breach. How else can you explain these situations?

1. Banks with D/E ratios and other leverage ratios>>1 pay less for their borrowings than us low leveraged individuals? 


2. Over collateralized loan(pawn shops) cost the poor more than what an unsecured loan costs those eligible for it! The poor pay more for gold loans than a salaried person pays for unsecured loans.


3. Microfinance, despite benefiting from portfolio diversification(and in certain parts of India-group guarantee via self help groups)[on the asset side] and priority sector treatment[on the liability side] still had very high interest rates, compared with other retail loans.


4. The regulatory accounting treatment for derivative assets(thanks to the netting/collateral provisions) makes this a very profitable business than the less risky lending business.

What goes? Surely, the institutions involved are aware of the mismatch. But these factors play a role IMO:

1. Even if their pricing models are 'behind the times', the final price('interest rates', 'spreads' etc) can always be notched up to charge what the market will bear. But getting internal approvals for charging a below 'model' rate(even if it is above market) is a painful process in some banks. So why not make that call on your own?


2. Also,  the business would much prefer to have risk underpriced in their systems, so that they can  win market share by selectively underpricing, have higher 'risk adjusted' compensation figures etc.


3. Prices often reflect the lack of competition(lead bank relationship, trust built with client, illiquid markets) or information asymmetry(complex products etc). No risk based pricing model can capture this well, necessitating the need for subjective customers. 


4. Point (3) leads us to the conclusion that savvy clients with multiple banking relationships/finance options(greater supply) would get better terms than clients with exclusive relationships with banks. Unfair but often true-even outside the finance world. The housing finance market where benefit of lower interest rates is passed on to new clients(but not to old ones) is an example of this. 


5. Basel II/III has made banks to explicitly consider different types of risks in their pricing/risk management-like operational, liquidity risk etc. Thanks to the dramatically different skills needed to price these risks, it has led to fragmented silos of internal Depts who all build(at times inconsistent) models to price it; and then a centralized manual process clunks out the final price. This is true for wholesale banking where relationships are monitored on an individual basis, but not for retail banking where portfolio treatment and s risk calculations