Further, what was important for the global reach of the financial crisis was that much of the asset and mortgage backed securities, originating from the US, ended up on European banks’ balance sheets. 4 This was partly spurred by differences in American and European banks’ capital requirements. There were also problems with the Basel capital requirements on banks’ trading book positions.
Capital in the range of zero to two percent of trading assets suggests that risks were not fully covered by existing capital requirements. In particular, the Basel rules allowed banks to lower their capital requirements by securitizing loans from the banking book and taking in effect corresponding risks onto their trading books.