By Maximilian Clarke
Following further review, the Basel Committee on Banking Supervision has evaluated the Basel II and Basel III capital framework agreements, today (Tuesday) announcing two amendments intended to foster trade with low-income countries.
The Committee agreed to waive the one-year maturity floor for certain trade finance instruments under the advanced internal ratings-based approach (AIRB) for credit risk. It also agreed to waive the so-called sovereign floor for certain trade-finance related claims on banks using the standardised approach for credit risk.
“Under the current AIRB rules, capital requirements for credit exposures are subject to a minimum maturity requirement of one year while the average tenor of trade finance transactions is significantly less than one year,” read the Bank of Internal Settlements’ executive review.
“Waiving the one-year maturity floor for issued and for confirmed letters of credit — instruments that are particularly relevant for low income countries when they import goods — would reduce capital requirements for banks engaged in trade finance and which use the AIRB.”
At a time when European economies are faced with the prospect of recession, boosting trade with low income countries and emerging markets is crucial to restoring stability within the EU.
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