Trade Finance vs the Credit Crisis

Trade finance usually performs very well when liquidity is scarce. However this particular credit cycle may prove to be nasty enough to trump those dynamics, writes Erika Morphy.

Around the beginning of September, a trade finance boutique had planned to start soliciting capital for a new fund it was going to announce. It would have been a significant milestone for the firm - indeed a milestone for the entire small universe of trade finance hedge funds, many of which are still deploying capital from their first fund.

Then the crash on Wall Street occurred, followed by the collapse of the US stock market, a severe crisis of confidence in the global banking system and the rollout of an extraordinary coordinated effort among global central banks and financial authorities to combat the crisis with interest rate cuts and huge injections of liquidity into the global financial system.