But, in its wisdom, the Basel Committee has decided that banks should hold 100% of capital against off-balance-sheet commitments - including trade finance instruments such as letters of credit - up from 20% under Basel II.
In its clampdown on off-balance-sheet finance, the committee has taken a broad-brush approach that fails to distinguish highly structured long-term instruments from shorter term, less risky trade finance. This could translate into a 6% reduction in trade finance capacity as well as a 40% increase in pricing at a time when expanding trade volumes require increased financing needs.
