The International Chamber of Commerce's banking commission is working to maintain a dialogue between banks, clients and regulators on keeping credit flowing to the real economy.

Over many years, the International Chamber of Commerce’s (ICC) banking commission has sought to clarify, educate and canvass both industry players and those overseeing them. It has evolved from a rule-writing body to become a key advocate, addressing the industry’s critical challenges. And it is here where I hope to add value as the new ICC banking commission chair. Certainly, I want to help banks rekindle their contract with society. And I want banks to no longer be penalised for being banks: instead allowing them to utilise their resources for the encouragement of trade and prosperity.

Governments, regulators, businesses and the public need to understand why banks are important for international trade as well as why international trade is vital for growth. Yet trust will only return when we can demonstrate that international banking is a better and safer way of doing business than before the crash. This requires a controlled and rules-based environment that can overcome the many challenges facing the industry.

Answering questions

Post-crisis, all businesses – not just the banks – are facing legitimate questions over their motivations and practices, which impacts banking everywhere. For instance, in Germany there are strong, divergent views on nuclear energy. Banks cannot stay neutral in this debate, forcing us to align with views that may differ from public perception. Reputations are at stake – with the challenges changing depending on a bank’s home market, as well as where it looks for growth. Awareness and tact are required.

Yet awareness and tact are also required when dealing with anti-money laundering (AML) legislation. The principles of AML tightening are inviolable, of course, but we are also duty-bound to make legislators and regulators aware of the potential unintended consequences. These fall hardest on small and medium-sized enterprises and/or high-growth markets, although it is here where the ICC can prove its worth by improving the industry’s dialogue with regulating bodies and helping to sharpen the rules: an objective that fits well with the banking commission’s overall mission of guidance and clarification. 

The shortfall in available trade finance, recorded in the ICC 2014 trade finance survey, can certainly be viewed as an unintended consequence. After all, there is no shortage of liquidity; this is simply a challenge with respect to marrying the available liquidity with the financing need. Constraints on banks are raising both the costs and concerns of entering into new relationships, resulting in banks becoming perhaps too cautious when evaluating new countries and counterparties.

However, challenges such as banking constraints also provide opportunities. New players are entering the market in unprecedented numbers: alternative or specialist financiers that bring new pools of liquidity, often lending to counterparties beyond the risk appetite of banks, although also creating new partnerships and networks with the banks. Certainly, we must welcome and encourage new entrants as they help drive the industry forwards. 

Emerging opportunities

Yet the greatest opportunity remains the emerging markets, where digitisation is helping countries such as Kenya innovate faster than developed markets. Such markets lack the legacy concerns that can slow down change in the developed world, meaning that emerging markets are 'greenfield' opportunities able to respond nimbly. Execution is also easier. In fact, some developed markets are falling behind, which may lead banks to rethink their locations.

That said, the biggest threat to international banking is also located in the emerging markets – that of geopolitical risk. Here, rule-making and/or advocacy bodies such as the ICC have no influence, although they can help discourage over-reactions from both banks and regulators to related concerns such as know your customer (and know your customer’s customer).

With respect to the key area of regulations, however, the banking industry is making strong progress. Basel III was a potential concern for the banks in the years immediately after the crisis. Yet – with respect to leverage ratios, the treatment of export credits and contingent funding liabilities – we are heading in the right direction. In part, this is thanks to the ICC’s policy-making and advocacy work, although there is a long way to go: on supply chain finance, for example, or anything around open account with respect to payables and receivables.

Given the need for standardisation, I welcome initiatives such as the ICC Academy, which is helping to create globalised standards in financial education, as well as educational transparency. The ICC Academy creates a common language for international banking, which can generate huge benefits: just one of the ways in which I hope the ICC can help renew the contract between banks and society.

Daniel Schmand is chairman of the ICC banking commission and head of trade finance and corporate cash management for Europe, the Middle East and Africa at Deutsche Bank.

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