Basel III: Gold to be considered for Tier 1 status

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The GSIBs cannot raise their cash reserves 16%. That's what I got from the report.

 

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Fed’s Barr says ‘broad’ changes coming to Basel III capital proposal​

Federal Reserve Vice Chairman for Supervision Michael Barr said today that regulators expect “broad and material” changes are coming to the proposed Basel III endgame capital standards, Bloomberg News reported. Speaking at a University of Michigan event, Barr echoed Fed Chairman Jerome Powell’s March 6 testimony before the House Financial Services Committee, in which he told lawmakers that significant changes will likely be made before the rule moves forward. Barr is the chief proponent of the proposal.

“I am working very closely with Chair Powell and other members of our Federal Reserve board to try to reach a broad consensus,” Barr said, according to Bloomberg. Specifically, he said criteria related to operational, market and credit risks could be adjusted.

More:

Fed’s Barr says ‘broad’ changes coming to Basel III capital proposal | ABA Banking Journal

Barr's comments echoed Fed Chairman Jerome Powell’s March 6 testimony before the House Financial Services Committee.

bankingjournal.aba.com

 

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LBMA faces challenges as it looks to establish gold as a High Quality Liquid Asset​

(Kitco News) - Gold has established itself as a store of value for thousands of years; however, the London Bullion Market Association says it faces further work to establish it as an important financial asset within the larger global marketplace.

After helping bullion banks avoid a funding crisis because of Basel III regulation, the LBMA said they are now focused on getting physical gold recognized as a High-Quality Liquid Asset (HQLA).

According to the Basel Framework, laid out by the Bank of International Settlements (BIS), financial institutions must hold HQLA to cover their total net cash outflows over a 30-day period under the stress scenario.

More:

LBMA faces challenges as it looks to establish gold as a High Quality Liquid Asset

Kitco News' general-interest stories takes a look at what is making headlines in the marketplace and how that is impacting precious metals prices

www.kitco.com

Update:

LBMA and WGC met with BIS to reclassify gold as a High-Quality Liquid Asset under new Basel III banking rules: GJEPC report​

Jul 11, 2024 - 12:27 PM

(Kitco News) – The London Bullion Market Association (LBMA) and the World Gold Council (WGC) are pushing to have gold reclassified under the Basel III banking framework, according to a report published Thursday by India’s Gem & Jewellery Export Promotion Council (GJEPC).

The GJEPC wrote that senior LBMA representatives including Paul Fisher, Ruth Crowell, David Gornall, and Edel Tully, joined the WGC’s Mike Oswin in Basel, Switzerland for a meeting with the Bank of International Settlements (BIS). The LBMA-WGC delegation met with Neil Esho, Secretary General of the Basel Committee, and Noel Reynolds, the Head of Basel III Implementation, to make the case for gold as a High-Quality Liquid Asset (HQLA).

The reclassification of gold from its current status as a Tier 1 asset to an HQLA “would bring about enhanced market stability, improved liquidity, regulatory compliance benefits, greater confidence and trust in the financial system, and overall economic and financial stability,” the GJEPC report said. “This would be advantageous for both financial institutions and the broader economy.”

More:

LBMA and WGC met with BIS to reclassify gold as a High-Quality Liquid Asset under new Basel III banking rules: GJEPC report

The Kitco News Team brings you the latest news, videos, analysis and opinions regarding Precious Metals, Crypto, Mining, World Markets and Global Economy.

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An integrated approach to a safer and more resilient banking system

Keynote address by Mr Agustín Carstens, General Manager of the BIS, at the Central Reserve Bank of Peru, Reinventing Bretton Woods Committee and Inter-American Development Bank 15th Annual Conference: "The rewiring of the global economy", Cusco, 19 July 2024.

www.bis.org

 

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In 3 years gold will go to $5k and everything except rare numis will go into the smelter to make large bars for central banks.

 

[pmbug]

Considering Trump wasn't supposed to win (or at least, isn't in the globalist's club), I don't think the BIS anticipated Trump's tariffs over a decade ago when they developed the Basel III framework.

The LBMA lobbied to have the NSFR requirement lowered back in 2019 but were denied by the Basel Committee. They (LBMA) warned then that "the rules could mean a number of banks stop trading or settling gold, curtailing market liquidity."

Scotiabank announced the closing of it's gold trading desk in 2020 because "increasing regulation has required more capital to be put aside to back trading, making it less profitable."

LBMA protested the NSFR again in 2021 and again were rebuffed. I'm not aware of any further banks closing their gold trading desks like Scotiabank did, but it's hard to imagine what the market might look like if JPM ends up closing their gold trading desk because of Basel III / NSFR.

 

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The LBMA published this article in October 2024:

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Since the 2023 US banking crisis, there have been calls to review LCR and NSFR requirements.

LBMA, together with the World Gold Council (WGC), has been engaging with BCBS as well as prudential regulators and central banks from strategically aligned nations. In Q4, we have a busy schedule of outreach with these various stakeholders and will be updating you, the Member, on significant developments.

Back in 2013, there was an uninformed perception of gold and a broad lack of understanding of the market dynamics and its infrastructure; it was perceived to be an asset with too much volatility.

It’s reasonable to argue that in the intervening years much of that perception challenge has changed – in 2010, the official sector purchased a paltry 79.2 tonnes of gold, but by 2023 that buying had surged to 1,030.4 tonnes (source: WGC). A central bank community that continues to buy a lot of gold reflects gold’s merit within the financial system.

The WGC has commissioned an independent academic study to examine gold’s case for HQLA reclassification, the results of which will be published later this year. The early learnings show that gold’s liquidity, as indicated by bid-ask spreads, is similar to typical Level 1 HQLAs including 30 Year US Treasuries; gold’s spread was one of the most favourable of a host of global government bonds during the SVB crises. Looking at the volatility of the bid/ask spread, gold’s is very similar to that of 30 Year US Treasuries. In short, gold hedges risk assets and performs differently to bonds, hence contributing to the resilience of a portfolio.

According to the BIS LCR dashboards, Level 1 assets are the most widely used within a bank’s Liquidity Coverage Ratio; indeed, many banks don’t want to hold Level 2 assets. We believe that broadening the amount of assets available in Level 1 to include gold would create a diversification benefit as gold is negatively correlated with many asset classes. Current data shows that gold’s liquidity characteristics as measured under the Uniform Definition of Liquid Assets hold similar liquidity metrics to those of 10 Year US Treasuries.

We feel very confident to state that had the gold trading data available today been accessible in 2013, gold would have undoubtedly been classified as either an extremely High-Quality Liquid Asset or a High-Quality Liquid Asset.

Gold doesn’t deserve a reclassification simply because the data now shows that it meets the criteria; perhaps more importantly, gold has demonstrated through the GFC, through COVID-19 and through the US banking crisis that it contributes to the stability of the financial system. The process for change is long and drawn-out, but we are hopeful that change will happen.

Gold and the Path to HQLA Status | Alchemist

Following the global financial crisis of 2008, prudential regulators implemented wholesale changes to banking regulation.

www.lbma.org.uk

 

[WinkWink]

 

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