New report looks to shake up Basel II

The Asia Development Bank (ADB) and the International Chamber of Commerce (ICC) have teamed up to prepare a special report which they hope will see trade finance get a better deal under the Basel II framework.

The report, which involves a vast matrix of data obtained from 10 major banks, is designed to differ from previous lobbying by the trade finance community by presenting quantitative data to the policy committee.

GTR speaks to Steven Beck, head of trade finance at ADB, who has coordinated the data gathering and will be presenting the information to the policy committee alongside representatives from the ICC.

“In the trade finance community there is a perception that trade finance is not treated appropriately under the Basel II rules, in regards to there being other forms of finance which are riskier and carry higher rates of default, higher probability of loss and higher probability of credit conversion from contingent to an actual liability,” explains Beck.

“As a trade finance community, we have put forward the case in various forms of lobbying to the Basel Committee but it hasn’t gone anywhere. The Basel Committee gets lobbied so heavily that what they really need is hard empirical evidence. So we have gathered this date to demonstrate what [the community] intuitively believes; that trade finance carries a lower risk profile,” he adds.

ADB carried out a feasibility study before compiling the data, commissioning the former operations leader of the European Bank for Reconstruction and Development’s trade facilitation programme, Hugh Baylis, to question over 40 banks around the world to determine if the report was necessary.

ADB then teamed up with ICC to create the ICC-ADB default register to start inputting data into the matrix of information that will become the report to be presented to the Basel Committee in mid-June.

Beck continues: “The Basel Committee have made it clear that they are listening to us and they are open and receptive to looking at the data and they certainly welcome us generating this data. They have not said unequivocally that it is going to change things, but this is really what they need to be able to talk substantially about potential ways that they might be able to look at trade finance, possibly as a different asset class, or perhaps with more appropriate treatment.”