Mooted US capital rules could harm supply chain finance, industry warns

Proposed US bank capital reforms under the Basel Endgame framework could require large lenders to set aside 10% of supply chain finance exposures as up-front capital. The Bankers’ Association for Finance and Trade (Baft) warns that these changes, driven by a broader definition of credit commitments, may make supply chain finance programs less attractive for banks and more expensive for corporate users. Industry advocates argue that the move could disadvantage US-anchored supply chains compared to international markets that have adopted more lenient treatments for trade finance products.

The draft reforms, unveiled in March, aim to implement the final tranche of Basel 3 standards in the United States by expanding the definition of a bank’s “commitment” to extend credit or purchase assets. According to a comment letter from Baft, this shift would force banks using the risk-based capital calculation approach—typically the largest US lenders that dominate the market—to hold 10% up-front capital against supply chain finance (SCF) exposures. Baft contends that the short-term, self-liquidating nature of SCF does not justify such requirements, especially since these facilities are almost never legally committed or tied to dedicated credit lines in program documentation. The Bank Policy Institute also criticized the move, arguing it introduces substantial ambiguity and unclear expectations for firms.

Industry groups emphasize that SCF operates on narrow margins, offering cheaper financing to corporates while generating relatively low revenue for the banks involved. Baft warns that a new 10% capital set-aside would likely outweigh the slim profits banks earn from financing discounts, potentially making these programs unattractive for lenders and less available to corporate users. This could disadvantage US-anchored supply chains relative to countries where SCF is not subject to such restrictions. Baft further argued that the current proposal to link trade finance products to a one-year maturity definition would unfairly penalize the financing of expensive capital goods, such as heavy machinery and aircraft, and called for a calibration that promotes economic growth consistent with “America First” trade policy.

The debate highlights a growing regulatory divergence, as the EU and UK have maintained lower capital treatments for core trade finance products instead of adopting the tougher Basel text. To improve competitiveness, industry associations like the International Trade and Forfaiting Association (ITFA) and the International Association of Credit Portfolio Managers (IACPM) are urging US regulators to allow banks to use credit insurance to trim regulatory capital burdens. They suggest that the US framework should be tweaked to include multi-line insurers as eligible guarantors, a move that would align the US more closely with European risk-offloading practices. Baft maintains that right-sizing these treatments will strengthen the US dollar and the country's global trade leadership while maintaining safety and soundness guardrails.