ICC Banking Commission Submission on BCBS Revisions to The Standardised Approach to Credit Risk Proposal
The ICC Banking Commission continues to advocate for appropriate and well-calibrated regulatory treatment of trade finance on various fronts, including as related to reserve requirements and capital adequacy standards promulgated by the Basel Committee on Banking Supervision (BCBS).
Along with the ongoing efforts of Member Banks and the Banking Commission Team around the ICC Trade Register, we recently engaged in internal deliberations and dialogue with interested industry associations, to respond to a consultation request by the BCBS.
The Banking Commission submission addresses numerous substantive issues, clearly illustrating that ongoing data collection, analysis and advocacy are required to assure the appropriate balance between equitable regulation and the conduct of legitimate, value-creating trade finance business. The Banking Commission paper makes numerous specific recommendations that have the potential to result in positive refinements to the regulatory treatment of trade finance by the BCBS and by national regulatory authorities charged with the implementation of capital adequacy standards. Specific recommendations include requests for the BCBS to consider:
- Differentiated treatment for claims on banks less than 90 days old and rolled over
- Differentiated treatment for trade finance exposures to corporate counterparties
- CCF for Commitments be revised to 20% or 50% based on exposure/product, in lieu of 75%
- The application of 0% CCF for certain types of trade finance commitments
- Recalibration of CCF from 50% to 20% for certain types of trade-related guarantee exposures
- Continued use of external ratings for emerging market MDBs when they are not highly rated or qualifying
- That consideration be given to the introduction of a new sub-clause aimed at providing greater clarity and guidance around the application of CCF to off-balance sheet items
- A redrafting of clause 53 aimed at ensuring consistency in the application of CCF to Letters of Credit (L/C)
- That the Basel Committee provides specific guidance relative to appropriate/best practices in the reporting of CCF, specifically around aggregation of sub-limits covering multiple products and the risk weighting assigned in the context of such structures
- Specific or lower risk weights for commodity trade finance when supported by strong structures and liquid collateral
- Clarify the use of insurance contracts issued by ECAs and other insurance companies when they satisfy
the eligibility requirements for set out under the collateral mitigation framework.