Are a changing regulatory landscape and the rise of trading houses as financiers edging banks out of the commodity finance space? GTR and Holman Fenwick Willan brought together banks in the field to discuss.


Roundtable participants

  • Spencer Gold, partner, HFW (chair)
  • Evelyne Collin, deputy head of corporate commodity and trade finance, Société Générale
  • John de Lange, managing director, SMEF – head of oil & gas, chemicals, ING
  • Dmitri Gainullin, director, structured trade finance, Credit Suisse
  • Edward George, head of group research, Ecobank
  • Teymur Huseynov, associate director, oil & gas, Ernst & Young
  • John Turnbull, global head of structured trade and commodity finance, SMBC
  • Karel Valken, global head trade & commodity finance, agri, Rabobank International
  • Kris Van Broekhoven, global head of commodity trade finance, Citi


Gold: The plan is to have a discussion about some key topical issues currently facing the trade finance industry; being the rise of trading houses and the perception, perhaps, that they are replacing – or not, as some banks might say – traditional sources of finance, the effect that has on banks and what their role is now – if that is different. Then we will talk about some of the areas in which banks are changing their approach, particularly in Africa, and then the effect of sanctions and regulation, and whether that affects everybody and what we think the future might hold.

Let’s start off by talking a bit about how we feel trading houses are perhaps becoming financiers. Are they replacing banks, or are they simply a conduit for dealing with counterparties with whom banks are finding it difficult to deal directly? Do they currently have an unfair advantage over banks because of the regulatory environment? Do we think the landscape may change and the playing field might become more level as regulation comes in?

Valken: When we started out doing trade finance many years ago, we were not talking about supply chain managers, we were talking about traders. Now people that work at companies like Noble Resources are saying: ‘Well, I am not a trader, but I am a supply chain manager.’ The question is: what does that mean? We clearly see the change from traders. In order to add value and economise the chain, the first thing they do is invest in logistical assets. Consequently, over years, you see the profile of a lot of these customers changing, whereby their financial needs are also changing in line with their balance sheets. The question is: as a traditional trade and commodity finance (TCF) bank, if you are client-centric, how do you change your coverage and products to the changing needs of clients? We see, particularly in Asia, where capital markets are much more used to seasonality and cyclicality, listed companies, being Noble, Wilmar and Olam. You do not see listed companies of that size or nature in the US, with the exception maybe of Bunge and ADM and some of the other ones.

Where does that leave us as banks? That is a little tough. What are your observations on how to deal with different kinds of customers?


Gold: Do you think that is a longstanding strategy, or are trading houses seeking opportunities while they are not affected in perhaps the same way as banks to consolidate their position by grabbing the sources of supply, dealing with the logistics? It means people have to go to them to buy from, and basically they’re forcing out smaller traders at the moment. Is that a feeling in the market, or is it just a change in tack; in terms of what they want to specialise in?

De Lange: I think what they are doing is what they have always been doing best: extracting value by adding optionality. In the past, they extracted value in a different way. Take, for instance, the changes Karel was referring to, with some companies buying into logistical assets and calling themselves supply chain managers. What are the people going to call themselves who for instance have, in the meantime, 30 to 40% of their revenues coming out of mining? Do they call themselves supply chain managers?

It is more a matter of being able to extract value. If you look at the fairly limited volatility there has been in many of the commodity prices, which I guess traders are not very happy about, they probably, to an extent, need to reinvent themselves, like they have done on numerous occasions during the past 25 years, to continue to extract value from the chain. Some of them are investing in infrastructure only; some in collection and capturing the whole chain. There are different levels and different ways of extracting that value.

George: It is also a question of changing dynamics in the market, because you cannot be a pure trader anymore. Nowadays pure traders tend to be very small, fitting a particular niche requirement. In contrast, the big trading houses are moving into the supply chain, but there are very few that are actually farm to fork. The vast majority go as far up the chain as they need to. There might be some markets where they outsource; they might sometimes do partnerships. That adaptation is exactly what you said about extracting value. It is extremely hard to extract value from being a pure trader. You really have to adapt by going in that other direction, further up the value chain.

It could also be that there has been a reversal in the role between banks and trading houses. I would be interested to get your views on this one, but I have been surprised by how much trading houses are lending money to banks in order to do trade finance. For example, there is a structure that is used by Cargill. They have been using it for a while. I do not know if it is common in other contexts.

Collin: It is not new. I can tell you, in 1998 everybody was talking about this. 15 or 20 years ago, Cargill was asking its banks to come behind them and finance banks through the so-called ‘financial LC’ when everybody was stuck with the Russian crisis.

George: Exactly, but the volume and size of it is new. Take for example the structure used by Cargill, which externalises the financing used for flows of goods between its own subsidiaries in different parts of the world.

Last year they did US$25bn worth of this financing, which knocks most trade finance banks out of the park. Then you have the case of Cargill and Louis Dreyfus lending part of their balance sheet to African banks in Africa so they can finance trade, which means the trading houses are lending to banks so they can finance trade. This is a complete role reversal, because the trading houses have become so big. I wonder if there is a case that they are not just too big to fail, but too big to sell nowadays.

Turnbull: The structure you mention has been around for 15 to 20 years. It is a synthetic structure that most banks in the commodity finance sector would not use, and we do not touch, so it is separate. It fits for small banks who cannot initiate deals themselves.

Going back to how the market is and whether it is changing, you could say, in some respects, the bigger trading companies have become supersized now. Compared with 10 to 20 years ago, the European mega traders are perhaps 20 times bigger today, but what you see is that the trading firms have now almost gone back, in one respect, to where they were 25 years ago. They were the people first going into the market, dealing with the producers, when the banks did not know the producers. Then when the banks got to know the producers, they started to do more directly, and while there are still many producers that we do that with, more recently you see the traders with the leverage and the expertise arranging deals directly with the producers. Also, regulation makes it easier for them to do that, compared with how banks are being weighed down with the regulatory issues.

Van Broekhoven: In my opinion, that prompts a question: can traders take advantage of a situation to take part of the territory that used to belong to the banks? Indeed, in the past, they had that territory before the banks. They were the ones that taught us about prepayment deals and performance risk a long time ago, so there is nothing really different in what is being done. Where the big difference is today, is that banks are so distracted by regulatory change, compliance, audits and all that stuff. Banks are very slow today, compared to a few years ago, and that is something they have seen. Traders are specialists in arbitrage, so they see these opportunities. The one thing they have done is take over the bookrunning and underwriting role for the export prepayment deals because the banks have been slowed down by these other changes. But in terms of products that are being offered, I do not see any difference at all.

Collin: At the end of the day, they sell the risk to the banks. They syndicate to the banks, and, if you look at the big traders, they hire a lot of bankers.

De Lange: On the topic of risk and compliance there was a quite interesting article in the FT yesterday by one of the senior persons at HSBC, which referred to the amount of time that banks these days spend on regulatory issues and compliance. The part I thought it important to mention is that it also creates a situation of organisations and individuals, which to a large extent in the end are the same thing, becoming very risk averse. Also, in terms of compliance, which we were talking about, they estimate that it has pushed up their cost efficiency ratio from 53 to 58, merely through the impact of the risk and compliance expenditure. Indeed, we are spending a lot of time behind our desks.

Collin: They originate, because we have no time to originate. In addition, what do they do? They go to the insurance market, and I think the combination of traders plus insurance market is becoming very important. We banks are not the only ones covering the risk on the producer, the performance risk and so on. The insurance market learned from us at the beginning. Now, they work directly with the traders.

Van Broekhoven: When we talked about them taking underwriting risk and syndicating facilities into the market, they used the insurance capacity to cover the underwriting risk. That is correct; that is new.

Gainullin: I believe what is new is the liquidity situation. Banks are sitting on piles of money, and they are facing problems with all this due diligence, slow response, onboarding. It is much easier to just throw the money into a jumbo RCF, unsecured, and then let the trader do what they believe is right to do with this money.

Van Broekhoven: Yes, but it depends on how big the exposure is, because these traders have their own risk management and credit management policies as well.

Gainullin: Absolutely, but what I am saying is banks are more willing to underwrite big tickets for unsecured transactions with traders, so they give the money to a RCF.

Turnbull: That is because the top traders are so much bigger now, and their capital is so much larger than it was.

De Lange: Your original question was: how do banks adapt to this, in terms of how to best service the changed requirements of especially the larger trading companies. At ING, a number of years ago in trade and commodity finance, we decided to set up a desk that deals with what we call MMCs, the major multinational commodity houses, purely with the idea that, going forward, these companies would have more diversified requirements from your run of the mill trading companies. We recognised that what it also requires is a different type of coverage, a different type of person also doing it, because, indeed, you will also be dealing with capital markets, doing term loans and RCFs. Although we do think – and it is why we have organised it in that way – it is important to continue to manage these clients in our trade and commodity finance business, because it is still very important to have the sector expertise.

Another important thing is that, especially with the very large trading houses that have also gone into production, you also have to make sure that you understand the individual risks in their businesses; that is also a challenge. Obviously, mining is something completely different from trading, and logistical assets have completely different implications. It is important that you get a good feel and have a good understanding of the risks that are part of those segments of their business.

Valken: Looking at strategic hurdles and challenges in our business, I look at the business model of our successful clients and how they operate in their matrix platform. That translates, at least in our case, in that we try to have people in places of origin and destination, allowing us to follow trade flows.
Coming to Africa, we are starting now in Kenya to capture flows out of Africa, or in Brazil, which really allows us to finance farmers, co-ops, all the way to state-owned entities in China. Supply chain managers try to be involved as long as possible in the flow. As long as we are also involved as long as possible in the flow, we are able to capture all the margins.


Gold: Do you think this is a temporary shift? At the moment, my perception is it is really a regulatory gap that affords trading houses an advantage. Do you think that will level up?

Collin: We have the same situation in Brazil. Karel, you are speaking about farmers in emerging markets. Some years ago, the producers were very small. Now, they are giant, what we call MMCs. They are tapping the bond market in the same way as traders. They are not traders but producers of commodities; but they really experienced the same evolution. As a bank we have to follow the big guys now, but we are still doing our job financing smaller producers, co-operatives. You will always have companies growing so that they need real coverage – rating advisory, debt capital markets and so on – and you will have the other ones, where thanks to all the organisations you are putting in place, you can follow their flow from the origin to the destination.

George: Is there not always a limitation when a commercial bank is going to finance traders that, in a sense, a bank can never know the business as well as traders know their business? Sometimes, it makes a lot of sense that pre-export and pre-production financing is handled directly by the trading house, because they have long-term relationships with companies in certain countries. They know all the different ins and outs of the operation. It is almost impossible to expect a bank to really understand that level of complexity of the business, and I think there is a logic that there should always be part of the business that they are not involved in, with the banks giving the funding to the trading house and saying: ‘Do your job, because we cannot actually do it better.’

Van Broekhoven: I do not completely agree with you. Banks that specialise in performance risk financing have always been able to assess performance risk and understand the supply chain or the origin of the goods and transportation. Where the traders come in now is that they have traders’ contacts, so they have contacts with certain clients at a very senior level, and, for the clients that are not existing clients of banks, they have an advantage; they are a bit ahead of us because they have those contacts. In terms of understanding, there is not much of a difference.

Collin: I agree with you, and I would say they have an advantage compared to us. They have a big leverage. This supplier/client leverage is very important, and we assess it in our financing. It is always better, with a risky counterpart, to benefit from the leverage of the trader.

Van Broekhoven: I do see a difference, when we talk about pre-export financing and prepayment deals. Traders have taken over from the banks in arranging, structuring and syndicating. Banks prepare proper information memoranda which include an assessment of the risks. Traders do not do any of that; you have to figure it out yourself. That is something that cannot last forever.


Gold: That is part of the regulatory background that is potentially in the offing. We have all sorts of things in the pipe-line, with MiFID, EMIR and Basel III regarding capital adequacy, but the people I have been speaking to are saying it is going to level the playing field; because the trading houses are so systemically important, almost too big to fail, regulation is coming out to support them. Do you think there is any credence in that?

The regulations that will come out are aimed at trying to support these trading houses who are now becoming systemically important, because they are so big, and they are not regulated in the same way, so they do not have transparency with reporting and publicising how they have got to their risk decisions. They don’t have the same capital adequacy requirements; they can take difficult positions.

Valken: Are you implying, because of that, that banks are, in a way, competing in certain areas with the clients?


Gold: That is where I was coming from originally, and I could see that the table was resisting that to the extent that there is competition. The thrust had previously been with some of the trading houses: ‘We are concerned that the playing field may level, because suddenly we have to employ all these guys to deal with risk and KYC, and we are now going to have to publish some of our credit reports.’ At the moment, most of them – or some of them, certainly – are privately held, and no one really know what goes on, other than we hope they make sensible decisions.

Van Broekhoven: If they are building these teams, it is because they have an opportunity to build them right now. They could not have all these former bankers before, because they were not available. In addition, they obviously have to support their own system of being able to arrange and originate, so they need to build these things. I do not think it comes from regulatory pressure. There has been talk about it, but so far, no action. There is still a debate out there as to whether they are systemically important or not, and we have seen reports commissioned by at least one of the big trading houses refuting that, so I do not think we are there yet.

Collin: I think everybody around this table has been conducting due diligence to assess the way the traders are taking and assessing risk. And sometimes they are much better equipped than banks. I do not think they are lagging behind us.

De Lange: I fully agree with Evelyne. For me, the main reason for that is information is at the core of a trader’s business, so a flow of information in their relatively flat organisations is key.

In other words, if you do not share information, it is seen as a capital offence, because you never know what piece of information may be of use to somebody else in the organisation to benefit from. Banks are generally less good at the flow of information within organisations. Siloes may be a big word, but it does not flow as freely as part of the business.

George: In the case of African markets, where the volume of trade finance is often too small to be worth the effort for a big multinational– US$10mn, US$5mn, US$2mn – ultimately, if you want to have exposure to that sector and you are not going to leave it to a regional or domestic bank to do balance sheet lending, if you want to be involved in that flow, the only way to do that is through one of the trading houses, or maybe a subsidiary that has that local knowledge. This is what I see as the real problem. Because you have a lot of banks who want to get more involved, but, the moment they take a look under the bonnet there are too many unknowns, too many risks, and ultimately the focus is moving back to the bigger deals that they are more comfortable with.

Van Broekhoven: That is right; it is the arbitrage we talked about earlier. They fill a gap. Obviously, banks are not ready to commit to a certain group of producers or co-operatives because it is too complicated; because they very often do not have that presence on the ground, so they cannot assess them and control the risk. Somebody else has to do it, and the traders have their people on the ground.

De Lange: I have found, over the years, the most difficult thing in the business is making that translation from what you see if you go somewhere to a decision making process. I have a feeling that, in a trading company, this is a lot more integrated.

It is the people who judge the risk on the ground who also, to a large extent, make the decisions. There is a lot more accountability as a result of that, obviously.

Van Broekhoven: In a flat organisation, people are encouraged to take responsibility and drive discussions and decisions, while for the banks, with regulators breathing down our necks all the time, it is the opposite that is happening.

Turnbull: It is their core business; it is what they do all the time. We are doing this as a part of our businesses, and we are also linking into the rest of the structure within the bank. It is fundamentally different, what a trader model is and what a bank model is. We are covering similar products sometimes, but we are doing it in a different way.

Valken: Trade finance is such a basic thing, and has a superior return compared to a lot of our business within the bank. Why? It is short term; it is often asset-backed/secured, so, especially at this moment when P&L and performance of a lot of banks are under pressure, trade finance has been, in our bank and a lot of other banks, the standout of a very good risk adjusted return on capital.

George: I want to ask a question to Spencer about this whole business of compliance. So much of compliance boils down to due diligence, and I have heard due diligence described as “manufacturing deniability”. How important is it to show that you have tried to prevent corruption, rather than actually prevented corruption, if we are getting down to the brass tacks of the impact it will have on your business? We have seen the size of fines imposed on detractors.

Turnbull: It is crucial. I do not think there are many people who, now, after what has been seen over the last few years, will just tick the boxes, because you have to really go into much more depth. There is no point doing this business otherwise, if you are going to get caught by regulatory issues. It costs time and money, but there is no way to ignore that.


Gold: That is right. You used to be able to mount a defence by showing that you’d tried, whereas I do not think that washes now. In America in particular, they are keen to show and make examples. Look at the level of the fine for BNPP. ‘We do not want people ignoring our sanctions. We are extraterritorial.’

Because of the financial consequences, rightly or wrongly, of wanting to deal with the dollar and being prevented from clearing dollars, for example, I do not think you can pay lip service to it anymore. You really need to do the due diligence, not show you have tried to do it. You have to show some result from it, and I think you have to show more of an objective standard. You have to have a real presence behind the due diligence that you do and be able to stand behind it. I do not think the authorities are particularly sympathetic to poor efforts on that front.

George: I just wonder, though, how you can ever fully protect yourself against the risk of corrupt acts occurring. The best you can do is show that you tried to put in all the different stops, checks and balances, but, ultimately, a corrupt act is committed. There is also this issue: how do you properly protect your employees so they are not forced into a situation where they are coerced into committing a corrupt act? This could be at a border crossing, or at a police roadblock, or dealing with a ministry, when they are put under extreme duress. Then there is the problem that, in a lot of places in Africa, it is normal to give a gift, but, under certain regulations, that would absolutely be considered corruption, whereas I think ‘facilitation payments’ are allowed under Dodd Frank, which is a very broad catch-all.


Gold: One of the issues is obviously to do with the level of the fine. If a system had been in place, but it had just been dealt with poorly, then perhaps the level of the fine for certain entities would be smaller. That is probably the factor that forces people to change the level and intensity of their behaviour.

Business is done in different ways in different parts of the world. How do you reconcile that with a very Western philosophy and outlook, where we have very pointed examples of what is really quite corrupt practice – people are stealing – versus, in order to get your stuff through and out of storage in a silo before it goes rotten, everyone pays money to a guy, otherwise it just will not get done. How do you balance those things, and how do you factor-in local customs and expertise with a Western orientated perspective on how the world works?

Van Broekhoven: Eventually, the market will address that. As long as you have global players participating in these transactions, they do not have a choice; they have to follow the rules. If the local rules for somebody else differ, they cannot partake. Naturally, I think all these rules will get harmonised over time. The market will just make sure that happens.

Turnbull: I think that is right, but it is just a question of time. The market will react. I think the big issue the regulators have had is concerning money laundering, and this is where many of the big fines have been. You probably all saw the UK FCA’s report and subsequent comments and redrafts they made on trade finance money laundering in the UK. They picked 17 banks – US, UK and European, and other smaller banks – and their main finding was not about banks’ approach to sanctions issues, which were generally okay, but specifically that banks had insufficient procedures to deal with trade finance money laundering. To your point of what we do as banks dealing with concerns of the regulators, it may be that we have to consciously state: ‘We have assessed the money laundering risk for each transaction we look at.’ Provided you formally consider that and record what you have done, then you protect yourself, to a reasonable extent. You have to do it properly.

Many banks have argued that there is not much money laundering taking place in trade finance. This is quite difficult to really measure, however the FCA’s review considered that banks’ policies, procedures and controls to counter trade finance money laundering were generally weak.

George: It is pretty hard if one of the things you have to track is exports of teddy bears from Los Angeles to Mexico and Colombia, which is one of the ways the drug cartels have used to repatriate their drug money. According to a recent report by Global Financial Integrity, false invoicing resulted in US$6.3bn of illicit flows in Ghana, Tanzania, Kenya, Mozambique and Uganda in 2002 to 2011, resulting in US$1.5bn of lost tax revenues. Fraudsters have very clever ways of trying to move money illegally, and certain goods that look innocent are actually covering illicit flows.

Turnbull: It is not typically commodity trade finance, for the most part. If you want to launder money, there are easier ways of doing it than through financing trade through banks.


Gold: That has brought us onto the repercussions of US and EU sanctions on global trade, which is one of the next topics, particularly with Russia at the moment. Is that having an effect on things? We are seeing that things are still moving at the moment. Anecdotally, when we speak to entities operating in Ukraine, Russia and the Crimea area, they are saying trade is getting through. They are able to move things, and the argument, politically, is that Putin does not want to be seen as stopping things from happening in a global trade sense. I don’t know if anyone has any experience they’re able to share or comments on the effects of sanctions, and whether they are going to have a real impact on trade flows.

Valken: From my angle, which is a co-operative agri angle, specifically in Ukraine, we see that, with what is happening, all the domestic banks are basically cut off from financing. The vast majority of domestic banks in Ukraine have reached their limits, which has an indirect crop risk, because a lot of farmers domestically are financed by the domestic banks. Our clients are, to a certain extent, concerned about the new crop and the ability of the farmers and co-ops to finance themselves domestically.

Secondly, for foreign banks – at least, for our bank – we definitely look very closely at where the assets of our clients are. In which part of the Ukraine are they? Are they in the West or the East? If you look at the deep sea ports in the Ukraine, which ones are okay? Which corridors are not affected? That is what we, probably like any other banks, are doing. In our case, we are not freezing lines.

Collin: What is also quite dangerous, evolving and difficult to assess is if one of the counterparts in a trade flow is owned by one of Putin’s friends listed in the March sanctions for example. If they own more than 50% of a company, the bank has to be very prudent, because this company is blacklisted. It is really becoming a nightmare to assess all that. I do not know what your experience is, but I think it is really tough.

De Lange: What concerns me with regard to the current US and EU sanctions on Russia, especially considering our type of business, is: what is going to be the effect on the refinancing risk of a number of companies? In other words, if you have sizeable banks in Russia that have restricted access to long-term funds: if you have less interest on the part of Western banks to be active, how are companies going to deal with the future refinancing of a sizeable portion of their existing debt?

George: Are you aware of deals that have effectively fallen by the wayside because of this? My understanding of the impact of the Russia crisis is that the threat of sanctions is very powerful if people believe they will eventually come into force. We saw how the first mention of sanctions led to the collapse of the rouble, with huge amounts of capital flight. Have we seen in the trade finance space that there are three-year or five-year deals that people are not going into because they are thinking: ‘I honestly do not know if to get repaid would break sanctions three years down the line?’

Gainullin: Definitely. The immediate effect for short-term trade is much less than the uncertainty created. It is the situation of uncertainty that prevents us from making long-term commitments.


Gold: We touched upon how regulation is becoming more important and you have to have compliance teams. I was speaking with banks, who are saying that the number of staff who make up their compliance department is now phenomenal. It is difficult to get a feel as to whether that will continue, but what do you think trade finance banks will look like in five years’ time? Will it be very compliance heavy, with huge swathes of lawyers and compliance and credit risk guys in the background? Do you think regulation will then taper off; it is just a political flash in the pan, or is this really how things are going to go?

Turnbull: The market will determine that going forward. We already see that, as with most banks, we recruited quite a few more compliance people. Because there is a limited talent pool of compliance people who understand trade, they have to gradually develop that experience. As that happens, you get a more sensible and measured response, a better understanding of trade, amongst compliance people, who are not seeing it in the same way to begin with. I personally think that, over the next five years, as the expertise in the compliance sector of trade finance improves, we will probably see a more balanced perspective.

I also think that, from the regulatory point of view, they have to look at the bigger picture issues, because you have, on the one hand, the UK government and so on saying: ‘We must support exporters, particularly SMEs.’ We also are encouraged to support low income countries, but the people who are impacted most by the regulatory, compliance issues on trade are not the big companies like Glencore and Vitol; they are the SMEs and low income countries.

As that point becomes a little more prominent, there will be a balancing out of the compliance push. I was encouraged that the FCA’s amended paper that came into force in June, compared favourably with the draft version published in July 2013. It encompassed a number of the suggestions that the various industry bodies had put forward –the BBA, the ICC and the AFB – in quite a sensible way. It is a question of time and people getting more accustomed to the issues and realising what the risks are, because, of course, you can launder money through trade finance, and we have seen that this has happened, but it is getting the right balance that is crucial.

Valken: The question will be to what extent banks in emerging markets, with which we have increasing competition – the Chinese, Asian and maybe even Brazilian banks – will step up their compliance as well. All around the table, we increasingly have some issues with a level playing field.

De Lange: You also have to be careful that you do not get compliance arbitrage, but, on this topic of not having a level playing field, how many other situations do we have where the playing field is not level? There are so many, so this is just another one. I make a comparison to, for instance, the Equator Principles on project finance, which have been debated since the early 2000s, and have, slowly but surely, been implemented, and they are now being expanded. That is still not a level playing field, just to name one, and there are a few others. Basel III is another one that is undoubtedly not going to be a level playing field from the outset. These things just take time, and it is probably easier said than done, but we just have to comply with the rules and find a cost-efficient way to do so.


Gold: We have run through the main topics on the list. I think we almost have consensus as to whether trading houses are replacing banks or not, and I think the view is that they just have a slightly different role. Rather than necessarily replacing banks, they are filtering. They are almost the middlemen. They are receiving the bigger facilities, and they are able – because of advantages of speed, size and decision-making – and to some extent regulation does not bite them as hard in the same ways, to make quicker decisions with smaller guys that it would take banks too long to deal with.

We touched upon issues to do with regulatory and compliance risk within banks, and there is an argument that a balance has to be taken at some point between demand for trade and the market, which will sort out what is seen as politically good capital at the moment.

Hopefully, as banks recruit more personnel and become more familiar with transactions, their departments will be quicker and more aware of the types of transaction that have taken place and how to deal with them. It is likely that there will eventually be some harmonisation as the market levels out and we strive to avoid regulatory arbitrage.

We talked about issues in Russia and Ukraine, and how the concern really is twofold. One is whether crop will be grown as a result of first end finance with the actual growers and farmers, and whether they can obtain finance to grow things in the first place.

Then, as a secondary issue, what will happen as existing facilities start to mature and run out? Where will the refinancing come from? Are the Russian banks big enough to bail them out as they did in previous crises?