Banks have 'commitment' issues with the new Basel proposal

This regulatory shift could make it harder and more expensive for you to secure or maintain credit facilities from your banking partners. Proposed changes to the 'Basel III endgame' rules are redefining how banks classify 'undrawn commitments.' Currently, a bank doesn't have to hold much capital against a line of credit they can technically cancel at any time. Under the new proposal, regulators want to remove this 'unconditionally cancelable' loophole. For retailers and operators, this means the line of credit you use to fund your inventory or bridge your cash flow is about to get riskier for your bank to hold. If banks are forced to set aside significantly more capital for these commitments, they will likely react in two ways: raising your interest rates or reducing the amount of credit they are willing to offer. Even if your business is healthy, your cost of capital could rise simply because of how the government forces banks to do their math. This rule change could also impact the lenders you partner with to offer customer financing, potentially tightening the credit available to your shoppers.

Source: American Banker — Top News

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