According to www.gtreview.com, proposed US bank capital rule changes could require lenders to hold 10% of supply chain finance (SCF) exposures as up-front capital — a move that industry groups warn will reduce SCF availability and raise financing costs for corporates.
Basel Endgame and the 10% Capital Hit
The draft reforms, unveiled in March 2026, form part of the US implementation of the final phase of Basel III — known domestically as the Basel Endgame. Under the proposal, banks using the risk-based capital calculation approach — typically the largest US lenders dominating the SCF market — would face a broadened regulatory definition of a “commitment” to extend credit, purchase assets, or issue credit substitutes. As a result, they would be required to set aside 10% of their SCF exposures as capital on day one.
Baft (the Bankers’ Association for Finance and Trade) detailed this concern in a comment letter to regulators dated June 18, 2026, which Global Trade Review reviewed. The group stressed that SCF programmes are inherently short-term and self-liquidating — characteristics that, in Baft’s view, “do not warrant a bank having to hold up-front capital.”
Narrow Margins, Shrinking Incentives
Baft underscored the razor-thin economics of SCF: “Supply chain finance programmes are not big revenue generators for the banks that host them for the very reason that supply chain finance offers a cheaper form of financing resulting in less profit for the bank,” the June 18 letter stated. It added that the slim profit banks earn — primarily from discount fees — would be “outweighed by the new 10% capital set-aside requirement.”
Because of these “narrow margins,” Baft concluded SCF programmes “would undoubtedly be less attractive for banks to offer.” That diminished appeal, the association warned, would directly reduce product availability: “Supply chain finance programmes would become less available to those desiring these products and services.” Crucially, it projected that “US anchored supply chains would be disadvantaged relative to other countries where SCF programs are not subject to these restrictions.”
Global Divergence on Trade Finance Treatment
The proposed US definition of “commitment” draws from the Basel Committee on Banking Supervision’s global capital framework — but adoption varies widely. While some jurisdictions have adopted the framework wholesale, others have deviated meaningfully. Notably, both the EU and UK maintain a lower capital treatment for core trade finance products rather than applying the stricter Basel text. Baft urged US regulators to mirror the UK Prudential Regulation Authority’s decision to scrap the link between off-balance-sheet trade finance products and maturity — a linkage that, under the Basel framework’s definition of trade finance exposures having a maturity of generally less than one year, would unfairly penalize financing for high-value capital goods like heavy machinery and aircraft.
The association framed its advocacy around national economic priorities: “Right-sizing the treatment of trade finance products will ultimately help strengthen the US dollar and strengthen the US’ position as the leader in trade in the world while maintaining appropriate safety and soundness guardrails.”
Credit Insurance Recognition Gap
A parallel concern centers on credit insurance — a key risk-mitigation tool widely used by European banks but underutilized in the US due to misaligned capital rules. Unlike the EU and UK, the current US framework does not recognize exposures to insurers with the same capital relief. The International Trade and Forfaiting Association (ITFA) and the International Association of Credit Portfolio Managers jointly called for regulators to amend the rules to include multi-line insurers as eligible guarantors. Such a change would allow US banks to reduce regulatory capital on exposures covered by policies issued by highly regulated insurers — aligning with established international practice.
This gap has real-world consequences: while credit insurance helps European lenders offset lending risk efficiently, its limited use in the US constrains banks’ ability to optimize their capital burden without compromising risk management rigor.
Regulatory Pushback and Ambiguity Concerns
The Bank Policy Institute — an influential research and advocacy body for US banks — has also opposed the revised definition. In its submission, it argued the change “introduces substantial ambiguity” and could lead firms to inconsistently interpret what it termed the “unclear expectations” embedded in the proposal. That lack of clarity, the institute warned, threatens consistent application across institutions and undermines regulatory predictability — a foundational element of sound supervision.
Baft reinforced this point, noting SCF facilities “are almost never legally committed” and rarely include a dedicated credit line or limit in programme documentation — further undermining the regulatory logic of treating them as firm commitments.
Source: gtreview.com
Compiled from international media by the SCI.AI editorial team.
