the exclusive club of rich countries.39 Mortgages and mortgage-backed securities were also favored with low-risk weights. But at the margin, the system continued to encourage risk taking. Furthermore, the lax provisions of Basel I enabled banks to hold substantial parts of their portfolio off balance sheet in special purpose vehicles (SPV) financed by ABCP. This was one of the main reasons why European banks were so active in ABCP. Their national regulators interpreted Basel I in such a way as to allow them to hold hundreds of billions of dollars of securities and fund them with short-term
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