17 October 2011

The impact of CRD IV on international trade and trade finance

General Recommendations on CRD IV

Based on broad consensus on directional changes needed

1. Support CRD IV proposal on maturity for trade finance instruments: CRD IV proposes to harmonise treatment so that actual maturity will always be used for trade finance. This recognises the inherent nature of trade finance as a short term, self liquidating and secure financial instrument and the proposal should be supported.

2. Adjust credit conversion factor for trade finance instruments under the leverage ratio: Increasing the CCF for trade will increase the cost of providing trade finance in some cases by a factor of five. Where the leverage ratio becomes the binding constraint on a bank, it may encourage banks to divert capital to other financial instruments, cease trade lending, or increase the cost of providing trade products to customers.

3. Create Separate Asset Value Correlation for Trade Finance: The Asset Value Correlation (AVC) is the asset value applied by analysing historical loss data for financial instruments. As short-term, self liquidating instruments, trade finance products may warrant a separate AVC from other types of corporate banking products this should be considered under CRD IV.

4. Account for Low Risk Behavior of Trade Finance under Liquidity Coverage Ratio: Given the self-liquidating and low-risk nature of trade finance, the measurement of net outflows and categorisation of high quality assets should be re-examined. We also recommend a global standard be established to ensure a consistent approach to determining run-off rates, reducing the potential for regulatory arbitrage across different jurisdictions.

Full presentation

© BUSINESSEUROPE