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The global trade finance market historically was considered liquid and wellfunctioning and accordingly did not attract much attention from policymakers. More recently, however, the sector has experienced periods of stress, most notably after the Lehman bankruptcy and also in late 2011, when funding strains at European banks raised concerns about possible disruptions. The sector also appears to be undergoing incipient structural change – including the entry of new market participants and efforts to develop new modalities that minimise bank capital and balance sheet usage. At the same time, recurrent data gaps have made it difficult to assess the extent and impact of recent dislocations, and to track and evaluate the importance of current market dynamics.
To better gauge these issues, in November 2012 the Committee on the Global Financial System (CGFS) established a Study Group, chaired by John Clark (Federal Reserve Bank of New York). The Group was charged to improve central banks’ understanding of the structure and functioning of the trade finance market, gauge how it has been evolving in recent years, explore how central banks can cooperate in better tracking trade finance developments, and assess structural change in trade finance markets and its implications for financial stability.
This report documents the Group’s findings, which are based on information from a variety of sources, including country-specific data submitted by Group members. Members also reviewed the relevant literature and undertook their own research, using the data set compiled by the Group, which has not been previously analysed in the literature. Members coordinated and exchanged views through conference calls and physical meetings, and conducted outreach to experts in the private and official trade finance community.
The report is organised as follows. Section 2 discusses the role of banks in international trade, followed by a description of the available trade finance data and their sources (Section 3). Section 4 uses this information to estimate the overall size of the trade finance market and assess recent trends, followed by a discussion in Section 5 of the potential impact of trade finance on the real economy and financial stability. Section 6, taking a forward-looking perspective, considers attempts to involve non-bank investors in trade finance markets. The final section discusses policy implications.