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Update: Basel trade finance rules eased

26 October 2011

Basel Committee relaxes Basel II regulations for trade finance.

Read more: Basel regulations WTO ICC Basel II trade finance capital requirements liquidity AIRB credit risk ICC-ADB

The Basel Committee on Banking Supervision has relaxed the Basel II regulatory capital adequacy framework for trade finance by issuing two waivers relating to letters of credit, traditional trade finance instruments.

The committee yesterday stated it has agreed to waive the one-year maturity floor for issued and for confirmed letters of credit under the advanced internal ratings-based approach (AIRB) for credit risk.

It has also waived the so-called sovereign floor for confirming banks for letters of credit using the standardised approach for credit risk. Both measures will reduce the level of capital banks need to hold against letters of credit, allowing them to fund more trade finance business.

However, the committee stated it has no immediate plans to change either the 100% Credit Conversion Factor (CCF) under the leverage ratio for contingent trade finance, nor does it plan to alter the 20% CCF under the risk-based standardised and foundation internal...

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