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He said: “I welcome the decision taken by the Basel Committee on Banking Supervision on 12 January, which modifies regulations on bank leverage in a way that will support trade. This decision is of particular significance for the availability of trade finance in the developing world, where letters of credit are a key instrument of payment. This is good news for developing countries, for the expansion of their trade and for the continued growth of South-South trade flows.”
The Basel Committee announced on 12 January 2014, the modification of a key rule for banks — which goes in the direction of facilitating trade transactions in particular in favour of developing countries.
The revised Text (“Amendments to Basel III's leverage ratio issued by the Basel Committee” — available on http://www.bis.org/press/p140112a.htm ), indicates that the Basel Committee will now follow this new approach for trade: “For short-term self-liquidating trade letters of credit arising from the movement of goods (eg documentary credits collateralised by the underlying shipment), a 20% CCF will be applied to both issuing and confirming banks.”
This revised approach means that the leverage ratio will be five times less expensive for trade instruments than originally envisaged.
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