BAFT-IFSA, a global financial services association for international transaction banking, recently praised the European Union’s adoption of amendments to Basel III rules designed to reduce the regulatory burden for the trade finance industry.
The industry has expressed some concern regarding the impact of Basel capital accords on trade finance and has urged international regulators to consider the low risk associated with such trade finance transactions. Some provisions of Basel III require banks to hold additional capital to cushion against losses on certain financial transactions.
Earlier this week, the European Union adopted the Capital Requirements Directive IV—known as CRD IV—which notes the low risk associated with trade finance transactions, thereby allowing financial institutions to hold less capital in reserve for the transactions.
“Through these amendments, the European Union has taken significant steps to alleviate the regulatory burden for trade finance and to ensure it remains available and affordable to importers and exporters,” BAFT-IFSA said. “This is a positive outcome for the real economy, and we ask the G-20 and the Basel Committee to recommend that these Basel III changes be adopted in all member jurisdictions around the world.”
A recent report from the International Chamber of Commerce found that trade transactions carry low risk, showing that among 8.1 million short-term trade finance transactions, the default rate was 0.02 percent, compared to the default rate on corporate loans of more than 0.6 percent.
“We will continue to work with the business community and other financial industry groups to encourage regulators to harmonize these sensible, pro-growth changes during the global implementation process,” BAFT-IFSA said.