Trade Finance During the Great Trade Collapse

On September 15, 2008, Lehman Brothers, the fourth largest U.S. investment bank filed for bankruptcy. Global credit markets tightened. Spreads skyrocketed. International trade plummeted by double-digits. Banks were reportedly unable to meet the demand from their customers to finance their international trade operations, leaving a trade finance “gap” estimated at around US$25 billion. Governments and international institutions were encouraged to intervene based on the information that some 80-90 percent of world trade relies on some form of trade finance. As the recovery unfolds, time has come to provide policy makers and analysts with a comprehensive assessment of the role of trade finance in the 2008-09 “great” trade collapse and the subsequent role of governments and institutions to help restore trade finance markets. After reviewing the underpinning of trade finance and inter-firm trade credit, ""Trade Finance during the Great Trade Collapse: Role, Response, and Results"" aims to answer the following questions: Was the availability and cost of trade finance a major constraint for trade during the 2008-2009 global economic crisis? What are the underpinnings and limits for national and international public interventions in support of trade finance markets in times of crisis? How effective were the public and private sector mechanisms put in place during the crisis to support trade and trade finance? And to what extent have the new banking regulations under Basel II and Basel III exacerbated the trade finance shortfall during the crisis and in the post-crisis environment, respectively? The book offers insights for policy makers in developed and developing countries and international organizations on the challenges confronting trade finance in times of crisis, especially in low-income countries and for small-and-medium size traders. Trade Finance during the Great Trade Collapse: Role, Response, and Results is the product of a fruitful collaboration during the crisis and includes mainly original contributions from the World Bank Group, international financial partners, private banks, and academia.