Though Basel II notionally maintained the 8 percent capital requirement, once the big banks applied their proprietary risk-weighting models, they found that they could sustain larger balance sheets than ever before. Under Basel I mortgage assets had been rated as relatively safe and counted only 50 percent for purposes of calculating the necessary capital. Rather than tightening those regulations as a way of moderating the real estate boom, Basel II cut the capital weight of mortgage assets to 35 percent, which made it far more attractive to hold high-yielding mortgage-backed assets.41
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