Call for Proposals
The SWIFT Institute invites proposals for research on restrictions to trade finance activity as a result of revised regulatory rules in Basel II and III.
Trade Finance and the Regulatory Requirements Arising from Basel II and III
Trade finance has an important role to play in helping to facilitate global trade, economic growth and job creation. The ICC (International Chamber of Commerce) Trade Finance Register has shown that trade transactions are typically short-term in nature and have a relatively low-risk profile. Using a dataset of up to 65% of traditional global trade finance activity (worth up to $2.5 trillion USD), the ICC found fewer than 3,000 defaults in the full dataset of 11.4 million transactions.
However, Basel III imposes certain requirements on trade finance activities that will likely have significant consequences. Basel III affects trade finance through two main channels: capital requirements and liquidity requirements. Banks need to increase the capital allocated for trade finance facilities provided to their clients. Furthermore a bank's ability to provide affordable financing may be significantly impacted by the liquidity provisions now being implemented. In order to comply with Basel III banks are implementing changes in the way they support trade finance. The cost of compliance will likely be passed on by banks to their clients through higher prices.
TOPICS: Research proposals must aim to validate and quantify the ultimate impact of these requirements on economic growth. The focus of the research could also look at the following (other suggestions are welcome)
The impact of the regulatory requirements on banks, their clients, the economy, etc.
- Impact on Banks
- Will the implementation of Basel II and III result in banks deleveraging/reducing their exposure on trade finance, and if so to what extent?
- How much more trade finance could banks do if the regulatory capital and liquidity requirements were a true reflection of the underlying risk of trade finance (e.g. if regulatory capital was similar to economic capital)?
- Impact on their clients and the economy
- By how much will pricing of trade finance change as a result of Basel II and III?
- Will a reduction in trade finance result in lower economic growth; and will this also impact jobs growth in the real economy? What is the correlation if any (e.g. what will the impact of a 1% reduction in trade financing be on economic growth; jobs growth; etc. as a percentage)?
- If trade finance was available at an appropriate cost to companies, how much more export/import could they do? How much more economic growth/jobs growth will it result in?
The risks of not implementing Basel II and III on trade finance activities.
Banks are withdrawing from trade finance in some regions. Is this a result of the regulatory requirements, and if so what is the impact of the changing landscape on trade finance?
GRANT & WORKING PAPER: A grant of EUR 15,000 will be awarded to the author of the selected proposal. 50% will be paid immediately; the remaining 50% will be paid on submission of a working paper following the research.
PAPER SUBMISSION PROCEDURE: Please submit your research proposal as follows:
1. CV/bio including education, work history, research experience, publications, etc.
2. Description of your research project (2,500 words maximum) to include the following:
- Objective of your research
- Methods by which you intend to undertake your research
- Timeframe by which you intend to complete your research
3. By email in MS Word/Excel/PowerPoint format, and/or pdf.
Deadline: Proposals must be submitted no later than 24 September, 2012
Email: Send submissions to: Information.SWIFT.Institute@swift.com