13 December 2017
Olivier Berthier

Banking Technology

Olivier Berthier - Moneythor

14Posts 75,654Views 6Comments
Finextra community

Financial Supply Chain

In the world of international trade, the process of exchanging payments, information and documents between buyers, sellers, banks, and other involved parties is becoming increasingly important for financial institutions. This community aims at presenting views and innovative ideas related to this financial supply chain space.

Basel III to raise more hurdles to trade finance?

10 March 2010  |  5857 views  |  0

There is an interesting piece on voxeu.org calling for a fair treatment of trade finance under the upcoming Basel III rules.

A majority of practitioners view Basel II as unfairly and dangerously tough on Trade Finance in terms of capital requirements under the Standardised Approach, compared to the "one size fits all" approach of Basel I (with its 20% credit conversion factor for trade finance). Well, it seems that Basel III might actually make things worst...

As was reported extensively throughout 2009 including at a G20 summit, the issues around Basel II under the Standardised Approach are primarily tied to the rigidity of its one-year maturity floor for all lending facilities, which unfortunately include traditional trade instruments such as Letters of Credit (despite their short-term nature). 

Even the Advanced Internal Ratings-based approach proves tricky for many banks that have difficulties retrieving historic data on performance, hence hampering their ability to build a custom RWA model potentially more favourable to trade finance... Arguably only the biggest trade banks can actually circumvent this, mainly because they can bear the cost and sophistication of an advanced approach and are also likely to have the vast amount of historic data readily available which the custom risk models would demand.

It is very positive to see the regulator striving to improve the banking system and great that it is aiming to tackle nasty excessive leveraging, one of the focus of Basel III. This all sounds good except for the fact that trade finance might end up being an unexpected casualty in the end again because it also enjoys an off-balance sheet treatment which would now have to bear a flat 100% credit conversion factor.

Will we end up with a fair treatment in the final version of the revised rules or is trade finance doomed?

TagsPaymentsWholesale banking

Comments: (0)

Comment on this story (membership required)

Latest posts from Olivier

Personalization comes to digital banking

21 January 2014  |  4907 views  |  2 comments | recomends Recommends 0 TagsMobile & onlineInnovationGroupOnline Banking

Mobile vs. desktop-based online banking

15 July 2013  |  8902 views  |  1 comments | recomends Recommends 0 TagsMobile & onlineRetail bankingGroupOnline Banking

Retail banking customers' satisfaction does not mean loyalty

21 May 2013  |  7250 views  |  2 comments | recomends Recommends 0 TagsMobile & onlineRetail bankingGroupOnline Banking

Cracking the PFM adoption code

06 May 2013  |  5189 views  |  2 comments | recomends Recommends 0 TagsMobile & onlineRetail bankingGroupOnline Banking

Transaction Banking gearing up for transformation

16 March 2012  |  5111 views  |  0 comments | recomends Recommends 0 TagsWholesale bankingGroupTransaction Banking

Olivier's profile

job title CEO
location Singapore
member since 2007
Summary profile See full profile »
Olivier is the Founder and CEO of Moneythor, a financial technology company operating an online personal finance service and developing banking software components designed to help consumers monitor a...

Olivier's expertise

Member since 2007
14 posts6 comments
What Olivier reads

Who's commenting on Olivier's posts