“This report – Trade finance: developments and issues, prepared by a Working Group chaired by John Clark (Federal Reserve Bank of New York) – examines the structure and recent evolution of the global trade finance market, and the interplay between changes in trade finance and international trade. In particular, it reviews the available data sources and what they reveal about the size and evolution of the market, sheds light on the performance and impact of trade finance during recent episodes of funding strains in global markets, and examines how ongoing structural changes may affect the market’s future resilience. In terms of financial stability risks, it concludes that losses on trade finance portfolios historically have been low. Moreover, given their short-term nature, banks have been able to quickly reduce their exposures in times of stress. However, this latter feature also introduces the possibility for trade finance to act as a conduit of stress from the financial system to the real economy, when banks run down trade finance books in response to funding and liquidity strains. As a result, policies that broadly address banking system capital and liquidity vulnerabilities and encourage vibrant competition are found to generally provide an effective means for avoiding or containing disruptions to trade finance flows – current regulatory efforts clearly work in this direction.”