Basel 2 and the availability and terms of trade finance Part I

By Andrew Cornford, Observatoire de la Finance, Geneva

Background

International trade has been severely affected by the current global recession: in 2009 trade volume actually contracted by about 12%, the sharpest fall since the Second World War (Lamy, 2010). The contraction in trade has been associated with a decline in the value and volume trade financing which reflects partly adverse macroeconomic conditions affecting world trade for but also a tightening in the availability and terms of such financing. According to some recent estimates this tightening has made a significant contribution to the contraction of trade, especially during the early part of 2009.[1] Among specific factors contributing to this tightening which are cited in recent global surveys of trade finance are increases in capital requirements due to the introduction of Basel 2.