23 May 2012

EBF: Joint Industry communication on international trade and CRD IV

Key Recommendation: Support European Parliament “Trade Finance Package” Amendments to CRD IV/CRR

• Trade Finance Description: The trade finance package includes an important recital recognising the nature of trade finance. It emphasises that trade finance is connected to the exchange of goods and services through financial products of fixed short-term maturity (Article 4 – Para 1 – point 55 a).
• Maturity: The Commission proposal harmonises the treatment of certain trade finance instruments so that always actual maturity will be used for these exposures. The trade finance package creates greater market certainty by specifying the types of self-liquidating, short-term trade financing transactions that will use actual maturity calculations. (Article 158 Para 3 (2) (b)).
• Leverage: Under the leverage ratio, the Commission proposes a credit conversion factor (CCF) for trade finance of 100 per cent, which would increase the cost of providing trade finance. The trade finance package amends the proposal by recognising that medium/low risk and medium risk trade finance instruments should carry a 20 per cent and 50 per cent CCF respectively. This will help ensure banks' continued ability to provide this important financing to customers (Article 416 – Para 8 – point a a and Annex 1 a).
• Liquidity Inflows: The Commission proposes that liquidity inflows shall be measured over 30 days and shall comprise only certain types of inflows. The trade finance package states that monies due over the next 30 days from self-liquidating short-term trade financing transactions, import and export letters of credit and similar transactions with a residual maturity of up to one year, shall be taken into account in full as inflows. This change further recognises the nature of trade finance and its importance to global trade. (Article 413, Para 2 (a)).
• Liquidity Outflows: The Commission proposes that institutions shall regularly assess the likelihood and potential volume of liquidity outflows over 30 days. The trade finance package amends this to reflect the maximum amount that can be drawn may be assessed net of liquidity requirements for trade finance. As with inflows, this is recognition of the intrinsically safe nature of trade finance exposures. (Article 408 – paragraph 2 – Subpara 1 and Article 412 – Para 1).

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