Basel Committee Overhauls Trade Finance Rules
Banks around the world got some relief on Tuesday when banking regulators eased regulations on capital reserves to boost trade with low-income nations. The Basel Committee on Banking Supervision, comprised of central bankers and regulators from nearly 30 major economic powers, decided to allow banks to take a more flexible approach to assessing risks of trade finance, which will allow them to reduce the amount of capital they set aside to protect against loan guarantees.
A spokesman for the committee indicated that the changes will improve access to and reduce the cost of trade financing tools for emerging countries. The committee also waived the so-called sovereign floor, meaning that banks will no longer have to use a nation's sovereign rating in assessing risk involved with a trade from that country. Insiders say that the sovereign floor rule had been a major hurdle to trading with developing nations, making such trades too expensive.
The Basel Committee made the changes after consulting with the World Bank, the World Trade Organization and the International Chamber of Commerce. While most trade finance insiders agree that the changes are positive, they also feel that more changes need to happen, and consider Tuesday's moves a pre-emptive response to expected pressure from world leaders meeting in November.
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