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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
If you were to single out one dominant theme in this issue of DCInsight, you might well term it "Basel on my mind". No fewer than three of our articles zero in on worries that the latest decisions taken by the Basel Committee on Bank Supervision (BCBS) will be harmful for trade finance.
Of particular concern is the BCBS decision to retain the so-called Credit Conversion Factor (CCF) at 100% for letters of credit and other trade-related instruments. Simply speaking, that means that off-balance sheet exposures will be converted to their on-balance sheet equivalents by multiplying them by 100%. L/Cs, formerly having a CCF of 20-50%, are now to be treated the same as far riskier investments.
Clearly, the BCBS, in an effort to bring more capital into the banking system, is taking account of banks' vulnerability during the current crisis. But the unintended consequences could be severe, particularly for developing country SMEs. Michael F. Quinn, in Discussion point, sums it up this way: "Developing world customers, particularly SMEs, will be denied the credit they need to build their businesses, increase employment and contribute to economic development." Practitioners of trade finance, many of whom may have never heard of BCBS, could well see a direct impact on their day-to-day business.
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On a more nitty-gritty note, Glenn Ransier, in our Expert commentary, tackles the old bugaboo of persistent discrepancies. After pointing out some of the reasons discrepancy rates continue to be so high - for example, examiners naming something/anything as a discrepancy rather than making a mistake - Glenn provides a useful checklist of moves examiners can make to see these rates come down. The lesson: a little prudence goes a long way.