Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102256
Authors: 
Auboin, Marc
Blengini, Isabella
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4953
Abstract: 
Trade finance, particularly in the form of short-term letters of credit has received favourable capital treatment new Basel III rules. However, concerns have been expressed over the potential negative “unintended consequences” of the newly created leverage ratio for trade. This paper offers a relatively simple model approach showing the conditions under which the 100% leverage tax on assets such as letters of credit would reduce their natural attractiveness relative to higher-risk ones, which stand in the balance sheet of banks. The decision by the Basel Committee in early 2014 weakening the leverage ratio on trade instruments seems to support the analytical framework developed in this paper.
Subjects: 
trade financing
cooperation with international financial institutions
prudential supervision and trade
JEL: 
E44
F13
F34
F36
O19
G21
G32
Document Type: 
Working Paper

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