The Treasurer’s Guide to Trade Finance

Chapter 5 Future developments

Although it is not possible to predict with any
accuracy how the trade market might develop
in future years, this chapter highlights a
number of the trends which are evident at the
time of writing and which are likely to develop
over the next couple of years.

Impact of Basel III on Trade

Finance

Introduction

The Basel III Accord is the third in a series
of capital accords developed by the Basel-

based Bank for International Settlements.

It complements, rather than replaces,

the previous Basel II Accord. In the EU,

Basel III is being implemented through the

Capital Requirements Directive IV (CRD

IV) with the European Banking Authority

(EBA) deciding on various detailed

implementation matters.

There are four main components to Basel

III. They are to be phased in by 2019. See

diagram below.

Amendments are being made to the

level of capital that banks must hold. These

The Basel Accords

Accord Lever 1 Lever 2 Lever 3

Basel I

Published:

1988

Capital

Flat rate 8% of exposure

ƒ Rules across international banks

ƒ Minimum base of own funds in every bank

➧

Basel II

Published:

2004

Capital

8% of Risk Weigted Assets

ƒ Risk differentiation – more capital for higher risk

ƒ Also for operational risk, besides credit and market

ƒ Range of implementation approaches (Standard,

Foundation, Advanced)

➧

Basel III

Published:

2010–13

Capital

More and better capital

Liquidity

More liquidity / better

long term funding

Leverage

Prevents execcive

build-up of leverage

Minimum Capital

Standards (2013–19)

Basel III strengthens

capital adequacy in all

three components – capital

resources, risk-weighted

assets (including CVA , FI AVC)

and capital ratios (phased

requirement to hold 7% of

RWAs in CET1 capital).

Liquidity Coverage Ratio

(2015)

Net Stable Funding Ratio

(2018)

Basel III introduces a regime that

promotes resilience to short-term

(30 day) and longer term

(1 year) liquidity shocks.

Leverage Ratio (2018)

Basel III introduces a regime that

constrains leverage in the banking

sector to 33 x Core Tier One

capital and mitigates risk through

non-risk-based measures.