The updates to Basel III earlier in 2013 provide little relief from the headache the regulation is causing commercial banks involved in trade finance, but a remedy may not be far off.
With the anticipated rise in the cost of capital under the key ratios of Basel III, banks are being compelled to shrink their balance sheets, with trade finance taking the hit. But as banks shed their trade finance assets, liquidity-rich, risk-averse investors looking to invest in asset classes that are relatively immune to market instability are paying close attention, as are alternative financiers. This reshuffle of the trade finance market is causing some anxiety about shadow banking, but also cautious optimism that the market may adapt to a new normal structure from which banks, investors and corporates can benefit.
