Publication: Trade Finance during the Great Trade Collapse
Loading...
Published
2011-06-22
ISSN
Date
2012-03-19
Editor(s)
Abstract
The bursting of the subprime mortgage market in the United States in 2008 and the ensuing global financial crisis were associated with a rapid decline in global trade. The extent of the trade collapse was unprecedented: trade flows fell at a faster rate than had been observed even in the early years of the great depression. G-20 leaders held their first crisis-related summit in November 2008. The goal was to understand the root causes of the global crisis and to reach consensus on actions to address its immediate effects. In the case of trade, a key question concerned the extent to which a drying up of trade finance caused the observed decline in trade flows. This book brings together a range of projects and studies undertaken by development institutions, export credit agencies, private bankers, and academics to shed light on the role of trade finance in the 2008-09 great trade collapse. It provides policy makers, analysts, and other interested parties with analyses and assessments of the role of governments and institutions in restoring trade finance markets. A deeper understanding of the complexity of trade finance remains critical as the world economy recovers and the supply of trade finance improves. The international community continues to know too little about the fragility of low income economies in response to trade finance developments and shocks, as well as about the ability and conditions of access to trade finance by small and medium enterprises and small banks in developing countries. Similarly, there is uncertainty regarding the impact on trade finance of recent changes in the third Basel regulatory framework.
Link to Data Set
Citation
“Chauffour, Jean-Pierre; Malouche, Mariem. 2011. Trade Finance during the Great Trade Collapse. © World Bank. http://hdl.handle.net/10986/2324 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Inter-Firm Trade Finance in Times of Crisis(2009-11-01)The paper discusses the main features that distinguish inter-firm international trade finance from alternative sources of financing. On the one hand, inter-firm trade finance could help overcome informational problems associated with other lending relationships; on the other, it may contribute to propagate shocks due to the interconnection among firms along credit chains. The paper evaluates the potential effects of a financial crisis on the use of trade credit for firms operating in developing countries. It argues that while the advantages of trade credit might remain largely unexploited due to poor legal institutions, the disadvantages might be exacerbated because of these firms greater exposure to a default chain. Based on these arguments, a menu of choices is identified for what policymakers can do to boost firms access to inter-firm trade finance in times of crisis.Publication Trade Finance in Crisis : Market Adjustment or Market Failure?(2009-07-01)As world leaders have agreed to massively support trade finance, this paper discusses the singularity of the issues related to trade finance in the context of the global economic crisis. Why should international trade finance be a particular issue of concern in the current circumstances? Are there specific market or government failures associated with trade finance that justify a special and differential treatment of the issue by policymakers? If so, what would then be the most appropriate policy instruments to address those concerns? The paper cautions against the notion of a large trade finance "gap," yet highlights the possible rationales and conditions for an effective intervention in support of trade finance.Publication Trade and Trade Finance Developments in 14 Developing Countries Post September 2008 : A World Bank Survey(2009-11-01)In the aftermath of the Lehman Brothers collapse in September 2008, drop in the supply of trade finance, a critical engine for trade transactions, has become an acute concern for the development community. Banks were increasing pricing on trade finance transactions to cover increased funding costs and higher credit risks, and trade was dropping drastically in most countries, with global trade projected to decline in 2009 for the first time in decades. Yet, little was known about the real impact of the crisis on developing country s capacity to export. The World Bank has commissioned a firm and bank survey on trade and trade finance developments in developing countries during the first quarter of 2009 to collect field information. In total, 425 firms and 78 banks were surveyed in 14 developing countries across five regions. This paper summarizes the findings of the survey as well as discusses the type of policies governments and international organizations put in place to mitigate the impact of the crisis. In sum, the survey findings confirmed that the global financial crisis has constrained trade finance for exporters and importers in developing countries. But the impact varied by the firm size, sectoral activity, and countries integration into the global economy. In particular, SMEs were particularly affected, and export diversification was made more difficult, especially in low income countries. Nevertheless, drop in demand has emerged as the top concern of firms at the time when the survey was conducted in March-April 2009.Publication Corporate and SME Workouts(Washington, DC, 2011-06)Bank loans can become non-performing because of problems with the borrower s financial health, problems with the design or implementation of lender protection features, or both. In ascertaining how to deal with a problem loan, it is important to distinguish between a borrower s ability to pay and willingness to pay, Making this distinction is not always easy and requires effort. This manual was written as a guide for lending institution staff dealing with non-performing loans (NPLs) extended to corporations and small and medium enterprises (SMEs). It deals with both ad hoc and systemic financial distress and delves into how borrower problems may have arisen in the first place. It provides guidance to lending institutions staff responsible for handling individual problem loans and to senior managers responsible for organizing portfolio-wide asset resolution.Publication Regulatory Reform : Integrating Paradigms(2009-02-01)The Subprime crisis largely resulted from failures to internalize systemic risk evenly across financial intermediaries and recognize the implications of Knightian uncertainty and mood swings. A successful reform of prudential regulation will need to integrate more harmoniously the three paradigms of moral hazard, externalities, and uncertainty. This is a tall order because each paradigm leads to different and often inconsistent regulatory implications. Moreover, efforts to address the central problem under one paradigm can make the problems under the others worse. To avoid regulatory arbitrage and ensure that externalities are uniformly internalized, all prudentially regulated intermediaries should be subjected to the same capital adequacy requirements, and unregulated intermediaries should be financed only by regulated intermediaries. Reflecting the importance of uncertainty, the new regulatory architecture will also need to rely less on markets and more on "holistic" supervision, and incorporate countercyclical norms that can be adjusted in light of changing circumstances.
Users also downloaded
Showing related downloaded files
No results found.