Treatment of trade finance under Basel capital framework (reference to Basel II and Basel III framework)
The Basel Committee on Banking Supervision has evaluated the impact of Basel II and Basel III on trade finance in the context of low income countries. As a result, it adopted two technical changes to the Basel regulatory capital adequacy framework related to the treatment of trade finance that will help promote trade with low income countries. The Committee conducted its evaluation in consultation with the World Bank, the World Trade Organisation and the International Chamber of Commerce. The agreed changes will improve the access to and lower the cost of trade finance instruments for low income countries. The changes to the capital framework agreed by the Committee are as follows:
- waive the one-year maturity floor for certain trade finance instruments under the advanced internal ratings-based approach (AIRB) for credit risk; and
- waive the so-called sovereign floor for certain trade-finance related claims on banks using the standardised approach for credit risk.