Rethinking trade finance regulation
Financial sector and trade finance regulation needs advocacy, engagement and dialogue from all parties to ensure the sector moves forward in a workable and profitable direction.
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Jean-Francois Lambert, Lambert Commodities 19 August 2016
Interesting plea for a more educated dialogue: - between practitioners, risk managers within the institution. - amongst banks - between banks and regulators But what is Trade Finance? It looks like everybody is satisfied that trade finance is about letters of credit, guarantees and stand by's. This is far from being comprehensive. Arguably, these instruments are part of the tool box. But they are not alone in there: Trade Finance is a much more diverse proposition including a blend of on and off balance sheet tools. Structured Trade Finance even more, but for regulators, all this is outright lending. Practitioners know this is not and that these techniques offer compelling risk mitigation without which trade would simply not be financed at all. This is particularly true in the world of commodity finance. But for now, this is off the radar screen despite a sub standard capital treatment. Not a big deal though: it only affects 25 pct. of world trade...