JPMorganis among several banks that have begun testing investor appetite for the trade finance equivalent of collateralised debt obligations – the derivative products blamed for compounding the financial crisis – in an attempt to boost lending capacity.
Trade finance supports more than 80 percent of global trade. But it has been disrupted by the financial crisis, as some lenders got into trouble, and by the regulatory response to the crisis, as banks have been ordered to hold more capital against lending.
Banks have lobbied hard against the constraints imposed on trade finance by the Basel III global rule book, due to be phased in from 2013.
The new rules for overall bank borrowing – the leverage ratio – treat a typical three-month trade finance loan as a year-long exposure, effectively forcing banks to hold far more top-quality capital against the loan.
That is deterring some banks from staying in the business and could push up trade finance prices by 300 percent or more, critics predict.
Regulators have made some adjustments but have been reluctant to rewrite the rules, which they see as a critical backstop to keep banks from becoming over-leveraged.
“The industry needs to develop new instruments, ” said Jeremy Shaw, JPMorgan’s head of trade services for Europe, Middle East and Africa. “We have tested the water with potential buyers. Institutional investors have the appetite.”
French banks, previously big players in trade finance, have retreated from the market in dramatic fashion in recent months, as they raced to shrink balance sheets in line with new European capital targets and their access to dollar funding – the currency of much global trade – dried up.
JPMorgan, one of the leading trade financiers, believes there is particular scope to “slice-and-dice” exposures to export credit agencies – the quasi-government entities that support export business – and repackage them as simple CDO-like instruments. A similar process is common for credit card debt.
Finding a legal structure that can pass regulatory scrutiny is proving difficult, however. Partners at several London law firms say they have been asked by clients to work on possible deals, but none have come off to date.
Globalization with Reason
An interview with George Monbiot, by Caspar Henderson of openDemocracy
George Monbiot, the leading environmental activist and writer, has been involved in many global campaigns of resistance to corporate and state power. But what positive social and political vision animates his work? Where does it contrast with that of globalisationâs advocates like Maria Cattaui, Peter Sutherland, and George Soros? And how does he see the future of the internationalist movement in the light of the âwar on terrorismâ? (v. long)
Caspar Henderson â openDemocracy has opened a debate on globalisation
Globalization from Below
March 18 2001
Globalization from Below
by Patrick Bond
(Review of `Globalization from Below: The Power of Solidarity,' by Jeremy Brecher, Tim Costello and Brendan Smith, Cambridge, MA, South End Press.)
There are more than a dozen new english- language books aimed mainly at an audience of international-justice activists, strategists and intellectuals. I've got the pleasant task of reading these in my role as coordinator of a seminar of 20 masters and doctoral students which starts next week in Johannesburg.
Because it raises issues so well and so forthrightly, honestly considers competing arguments, I chose to make one book-- Globalization from Below--required reading (as I will do again in a similar seminar at York University in Toronto this summer)
Cooking the Books
What drives companies to 'cook the books' â or lie about their earnings
just how widespread this problem might be. How much of the global economy is based on 'smoke and mirrors' book-keeping
a genuine weak spot in the financial system that could ultimately lead to a meltdown? These are interesting questions for people to ask and it is especially useful for to identify such weak spots. Book cooking is a topical issue in the wake of the implosion of the amazing disintegrating known as Enron.
Both inside and outside the financial world people are asking the question 'How many more Enrons are out there?' we first look at the pressures behind book-cooking with a glimpse at the Wonderland of Accounting