(Updates with comment from the World Trade Organization and World Bank in 11th paragraph.)
Oct. 25 (Bloomberg) -- Global bank regulators have eased parts of bank-capital rules to counter concerns from lenders that the measures may harm international trade.
The Basel Committee on Banking Supervision said it had waived some rules on the reserves lenders must hold against guarantees for importers and exporters so as to protect growth in emerging markets.
The changes “will improve the access to, and lower the cost of, trade-finance instruments for low-income countries,” the Basel committee said in a statement on its website today. the alterations “will help promote” commerce with such nations.
Governments are seeking to bolster banks’ reserves to prevent a repeat of the turmoil that followed the collapse of Lehman Brothers Holdings Inc. and restore market confidence damaged by the euro zone’s fiscal crisis. Today’s measures will apply to current capital rules as well as proposals known as Basel III, which will more than triple the core capital that lenders must hold.
The Institute of International Finance, which represents global lenders, has said that the plans agreed to last year may “put at risk the affordable trade of essential goods and adversely impact import-export business and emerging markets.”
Letters of Credit
One of the changes agreed to by the Basel group will allow banks to use shorter-term capital instruments to back letters of credit that they provide to importers and exporters.
A letter of credit from a bank guarantees that the buyer will pay the seller on time. Such letters are issued by the importers’ bank and confirmed by the exporters’ bank.
Another alteration will reduce the amount of capital that confirming banks have to hold against letters of credit issued by lenders in low-income countries.
The Basel committee made the changes following consultations with the World Bank, the World Trade Organization and the International Chamber of Commerce, the group said.
Letters of credit are one of a number of so-called trade finance activities provided by banks to support international commerce. They also include short-term loans to companies.
World Bank President Robert Zoellick and WTO Director General Pascal Lamy welcomed the Basel changes.
“While necessary, the strengthening of prudential standards for the financial industry needs to take account of the low-risk nature and the pro-development impact of trade finance,” they said in a joint statement.
Today’s changes don’t solve the “main concerns,” raised by U.K. banks, Irving Henry, a director at the British Bankers’ Association, said in an interview.
These include criticism that a proposed indebtedness limit, or leverage ratio, may lead to a fivefold increase in the capital that must be held against trade finance activities, Henry said.
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