Trade Services
The Basel bashing continues
Banks told to do more advocacy with customers when it comes to explaining the impact of Basel III on the costs of capital, and to get their act together in terms of compiling loss data to demonstrate the low risk nature of trade finance.
Sibos Toronto 2011
Another Sibos, and another panel of banks bashing Basel III. Although banks have until 2019 to comply with Basel III, the banks zeroed in on the Basel III proposals from day one. Sceptics say it is the banks way of warning clients that they are likely to pass on the costs of complying with Basel III. Today's panel at the Sibos conference in Toronto, did not go out of its way to lay that assertion to rest. Kah Chye Tan of Barclays Corporate did however resist the temptation to jump on the Basel-bashing bandwagon. That may be because he is the bank chair of the International Chamber of Commerce's Commission on Banking or perhaps because he truly believes that banks have had 20 years to get their act together when it comes to Basel in its many incarnations and being able to compile data to demonstrate to the regulators that trade finance is low risk. "We had to wait for a major sub-prime crisis to get our act together on data," he stated. "We can't keep putting the blame on Basel." However, Adnan Ghani,head of global trade finance, Royal Bank of Scotland, believes compiling loss data for trade finance is not that straightforward. He said he had tried to do this for his own bank but it was a "nightmare". Although the deadline for compliance with Basel III is some ways off, Kah Chye said that banks needed to mobilise liquidity now and that there was a race among some countries to see who could implement the most conservative version of Basel III. Ghani painted a rather gloomy picture for the future of trade finance saying that while currently banks try to cross-sell expecting a deposit or an operating account in return for a trade loan, under Basel III, he said there would no such reciprocity. Another of the so-called "unintended consequences" of Basel III is that it could lead to higher levels of securitisation as banks look to move assets off their balance sheet. However, the costs of securitisation are not insignificant. If banks are unable to deliver any price benefit to customers, then Ghani fears customers will turn around and say, "they don't need a trade facility." That means a poor growth outlook for trade in the future. Ghani says banks need to do more advocacy when it comes to engaging with customers particularly SMEs about the impact of Basel III on the costs of capital. Date Posted:20th September 2011