HSBC and StanChart Call for Basel III Rewrite

Some of the biggest trade finance providers, led by HSBC and Standard Chartered, are lobbying to have tough capital rules toned down, warning that if they are not, world trade could be severely hampered.

HSBC , among the banks that dominate the trade finance market, said last week that it was not prepared to forecast its future capital ratios under the Basel III regime, mainly because of the unfairness of the rules’ treatment of trade finance, one of its core businesses.

Most banks have begun detailing the impact that the rules – which increase assets’ risk weightings and narrow the definition of core capital – will have on capital ratios.

But Douglas Flint, HSBC’s finance director and chairman designate, told the Financial Times: “It would be premature to speculate what the impact [of Basel III] will be.”

He said lobbying was continuing in an effort to persuade regulators to rewrite the rules.

Last month Karen Fawcett, head of transaction banking at StanChart , told a conference: “If the regulations are implemented as they are currently written, we could be seeing a 2 per cent fall in global trade and a 0.5 per cent fall in global GDP.”

Royal Bank of Scotland , another big trade finance provider, is also concerned about the impact of the rule changes.

Stephen Hester, chief executive, signalled on Friday that RBS, too, was lobbying for a changed approach to trade finance, among other lending.

Under the Basel III rules, due to be phased in by 2019, banks would be forced to hold five times the amount of capital – 100 percent of a lending commitment, up from 20 percent currently – to back trade finance business.

Liquidity and leverage rules, also part of Basel III, could pose problems.

Leverage ratios take no account of the risk profile of a loan, and banks such as HSBC argue that low-risk trade finance could unjustly push leverage ratios beyond maximum thresholds.

The Basel Committee on Banking Supervision, which published the rules in September, is struggling to carve out special treatment for trade finance that would chime with its aim of reducing incentives for interbank lending.

Lobbying is taking place directly as well as through the Bankers’ Association for Finance and Trade, an industry body.