Basel III: Gold to be considered for Tier 1 status

Welcome to the Precious Metals Bug Forums

Welcome to the PMBug forums - a watering hole for folks interested in gold, silver, precious metals, sound money, investing, market and economic news, central bank monetary policies, politics and more.

Why not register an account and join the discussions? When you register an account and log in, you may enjoy additional benefits including no Google ads, market data/charts, access to trade/barter with the community and much more. Registering an account is free - you have nothing to lose!

Basel III is supposed to come into effect at the end of this month. I'm still seeing mixed reporting out there on what it means for banks and gold.
 
This is an old thread and I had pretty much forgotten about Basel3
I thought the TBTF banks had everything they needed )-:

So what does the mixed reporting suggest might happen Bug ?

and in reply to your previous post on this thread -

So, it seems that we understood it backwards - gold isn't going to be valued at 85%, it's going to be valued at 15%. 85% is the value of cash they need to hold in reserve to cover the value of the gold (in case the market/price crashed).
Click to expand...

A great way to get gold holders to give up on the idea and buy it up at a sale price
They clearly will do pretty nasty and desperate things to obtain enough gold to keep the show on the road ?
 
rblong2us said:
...
So what does the mixed reporting suggest might happen Bug ?
...
Click to expand...

Some suggest it means banks will be increasing gold holdings as it's a now a better asset. Others, as you quoted, suggest it's actually now a worse asset and will lead to banks selling off gold holdings.

I wish I could find a definitive source explaining the situation in clear language.
 
Here's another report on Basel III written by someone who sounds a lot like a gold bug, but which also describes the 85% haircut as requiring banks to hold more cash collateral for gold holdings:

http://bmg-group.com/gold-zero-risk-monetary-asset/

The author briefly mentions the NSFR issue then talks about how gold qualifies as “a 0% risk weighting for risk-based capital purposes.” It doesn't really explain what that means though.
 
Yeah, I'm not sure that author had all his facts straight. Initial reporting on Basel III (as per the OP of this thread) were indicating a tier 1 asset with 100% valuation as he mentions, but that changed.
 
Ok so if Basel III came into effect 11 days ago and the price of gold has moved $10 and is broadly where it was a month ago, what might we conclude from this ?
 
Well, if the gold price was actually based upon the physical market, we might be able to draw a conclusion. But it's not, so ... ???
 
But it's not, so .......

so the price of gold will not significantly increase until either:

1) Gold becomes scarce because the physical market gets very tight; and maybe Basel III has an impact on that due to heavy accumulation by central banks, or

2) TPTB want it to increase, and they might want it to increase now that gold has Tier1 status via Basel III.

Edit:
3) The price of oil rises significantly again for a sustained period.
 
Last edited:
So we can conclude that Basel III has no effect on POG ?

why would TPTB want an increase in POG if they have to have cash deposits to 85% of its value

and how might they respond if POG were to rise rapidly ?

The cash deposit required to back gold holdings seems like a great way to suppress price )-:
 
Found this report from late January:
European finance ministers have rejected a proposal to ease new liquidity rules for banks trading gold, the London Bullion Market Association (LBMA) said.

The industry says the planned rules could force some players out of the market. Due to take effect in the European Union around 2022, they form part of regulations known as Basel III designed to make banks more stable and prevent a repeat of the financial crisis a decade ago.

The rules treat physically traded gold like any other commodity, requiring banks to hold more cash to match their gold exposure as a buffer against adverse price moves.

The LBMA says they are unnecessary, costly and would disrupt London’s bullion clearing system, which settles gold transactions worth around $23 billion a day.

EU finance ministers rejected a proposal by the European Parliament to lower the percentage used to calculate the liquidity buffer that banks must hold to 50 percent from 85 percent.

Instead, the European Banking Authority (EBA) will examine whether to lower the percentage or exempt precious metals from the buffer, known as the net stable funding ratio (NSFR), the LBMA and the European Council said.

“We are still optimistic,” said the LBMA’s general counsel, Sakhila Mirza. “While we were hoping for that 50 percent, ultimately our aim has always been getting an exemption.”

The LBMA, whose members include major gold refiners and bullion-trading banks, says gold is liquid enough not to need an additional liquidity buffer for clearing and settlement and short-term transactions.

It says the rules could mean a number of banks stop trading or settling gold, curtailing market liquidity. London is one of the world’s biggest bullion markets.

Mirza said the review was likely to last two years. The EBA will then make recommendations which would have to be approved by the European Commission, parliament and council of ministers.

She said the LBMA was preparing to lobby the EBA and that data the LBMA began publishing last year showing for the first time how much gold and silver trades in London each day would help convince the EBA of the need for an exemption.

While Britain plans to leave the European Union this year, the EU’s approach is likely to inform how Britain applies the Basel III requirements.

A European Council official said the EBA had been tasked with reviewing the NSFR requirements for precious metals and did not comment further.
Click to expand...

https://www.reuters.com/article/us-gold-regulation-nsfr-idUSKCN1PI12A
 
going back to this -
So, it seems that we understood it backwards - gold isn't going to be valued at 85%, it's going to be valued at 15%. 85% is the value of cash they need to hold in reserve to cover the value of the gold (in case the market/price crashed).
Click to expand...

I find myself pondering if it doesnt mean that COMEX aqnd other futures markets would be obliged to hold 15% of the paper contracts as actual metal ?

This would be an interesting shift from the approx 0.5% they currently seem to hold.
 
I'm pretty sure the Basel III is a standard for the banking industry and doesn't have any bearing on the commodity exchanges. As the latest article above shows, the LBMA was concerned about how it will affects banks trading metals. It could potentially cause a liquidity crisis on the exchanges if the banks just close down their metal trading desks.

Should this happen, I suppose we might finally see a violent event where the futures/paper market no longer sets the price for the physical metal.
 
* bump *

Was reading back through this thread today while reflecting on recent news (bold emphasis is mine)...

U.S. regulators were investigating Bank of Nova Scotia’s (Scotiabank’s) (BNS.TO) metals trading activities several months before it told staff it would wind down the unit, according to its most recent earnings report.

Scotia, one of the most venerable names in the gold trade, told staff in a global call on April 28 that it would wind down its metals business by around the start of 2021, two sources familiar with the matter told Reuters at the time.
...
The winding down of Scotia’s metals business draws the curtain on what was for years the world’s biggest lender to the physical precious metals industry, with a history stretching to the founding in 1684 of London gold dealer Mocatta Bullion.

Scotia’s senior management had long viewed its metals business as inherently high risk and out of step with its core strategy, six sources familiar with the matter said.

In its heyday a decade ago, ScotiaMocatta, as the unit was known, brought in around $300 million a year, but increasing regulation has required more capital to be put aside to back trading, making it less profitable.

In 2017, Scotia decided to sell the metals business, but failed to find a buyer and instead sharply downsized it.
...
Click to expand...

https://uk.reuters.com/article/us-m...e-before-metals-closure-filings-idUKKBN22K1Q7

Basel III holla!
 
* bump *

Looks like this issue is back on the table...

...
In a 58-page protest submitted to the Bank of England’s Prudential Regulation Authority, the LBMA and the World Gold Council complained that the “Net Stable Funding Ratio” provision of the Basel III regulations would require the London bullion banks to hold funds offsetting 85 percent of the value of the unallocated gold they hold for customers, and the banks could not afford this.
...
The protest continues: "The required stable funding for short-term assets would significantly increase costs for London Precious Metals Clearing Ltd. clearing banks to the point that some would be forced to exit the clearing and settlement system, which may even be at risk of collapsing completely. ..."
...
The LBMA and World Gold Council protest is dated May 4 and is posted at the LBMA’s internet site here:

LBMA Responds to PRA Consultation

Read the full response from LBMA and World Gold Council to the Prudential Regulation Authority (PRA) consultation paper on the implementation of Basel Standards and its impact on the precious metals market.
www.lbma.org.uk www.lbma.org.uk
...
Click to expand...

Basel 3 rules will wreck gold price suppression, LBMA warns Bank of England | Gold Anti-Trust Action Committee | Exposing the long-term manipulation of the gold market

gata.org gata.org
 
... as they stand the new Basel 3 regulations ... means that mainland European banks, of which ten are LBMA members including the Swiss, will have to comply with the new regulations from the end of June, and all UK banks, in effect the entire banking membership of the London Bullion Market Association (LBMA) will have to comply by the year-end....

... depending on how the UK regulator applies the NSFR rules. This is because in the calculation of required stable funding, gold consumes 85% of available stable funding while gold liabilities contribute no available stable funding at all. The effect is to impart a negative factor into a bank’s overall net stable funding calculation, making unallocated gold trading hopelessly uneconomic in terms of deployment of total funding capital. The alternative, which does not appear to be under the LBMA’s consideration, is to admit that the whole unallocated gold trading business has nothing to do with gold bullion but is in fact gold derivatives; in which case capital funding penalties under the NSFR would be broadly limited to imbalances between derivative liabilities and derivative assets.

Consequently, it appears that an allocation backstop of 85% of available stable funding (ASF) must be swallowed in the case of gold, which does not appear to be the case if the LBMA confesses to the paper charade. ...
Click to expand...

More (long): https://www.goldmoney.com/research/goldmoney-insights/the-end-of-paper-gold-and-silver-markets

So much FUD. So little sunshine/clarity.
 
Tom Luongo has an interesting take on it

Basel III & The New Role For Gold | ZeroHedge

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero
www.zerohedge.com www.zerohedge.com

He sees it as something the Europeans need to happen.
I have a lot of time for Tom Luongo and always read his articles
He seems to see the big picture stuff better than most.
 
The biggest flaw that I see in Luongo's thesis is that the crypto crash is largely the result of actions by China which is presumably not an agent of the ECB/Davos crowd. China is trying to push their own CBDC non privacy coin on it's people.

Still, aside from the crypto comments, a planned gold jubilie to save the ECB is an interesting take. I would have to assume the Fed/USA would oppose this as it would likely destabilize/dethrone the dollar as capital flows to gold and not US Treasuries. Is the BIS throwing down a guantlet or is this really all coordinated by some big boys club?
 
Is the BIS throwing down a guantlet or is this really all coordinated by some big boys club?
Click to expand...

perhaps we will find out or at least get an insight into any factional friction ..........
 
If the rules do stress the banks' gold trading desks, I expect we should start seeing fallout in July/August from a few Euro banks and around Jan/Feb for the UK banks. Will operational trading desks absorb the short positions of their exiting peers? Will the markets carry on until it can't? Or will we see some graduated lifts as paper shorts are liquidated?

I'm guessing we don't see much until 2022.
 
I've been thinking about this issue a lot. I'm inclined to disagree with Hugo on this point. The Basel 3 rules regarding gold weren't developed in response to any machinations within the last year. They were developed nearly a decade ago. The implementation deadline is just finally approaching.

I think back to how the world made accomodations for China to join the G20 and such. Rickards said years ago that central banks were keeping gold cheap to allow China to buy enough to have a proper gold-GDP ratio on par with USA/Europe. He wrote years ago that gold would likely be part of the NWO one way or another (planned or unplanned).

I suspect that this was all planned out years ago. It just didn't occur to any pundits *how* the plan would work even though this thread is a testament to the evidence being right in our face the whole time.

And by 'this', I mean free gold and a NWO monetary system.
 
Yes its been under discussion for as long as I have been following the metals.
And with regards to Freegold, when his site was free and fully accessible, I used to follow FOFOA closely.
There were / are some bright individuals in the speakeasy and the legacy of Another / Friend of Another, is still a place to go if you want to get a deeper understanding of how the money system really works.
I just found a recent interview of FOFOA and am working through it -

 
Andrew McGuire talks Basel 3 starting at around the 3 minute mark:

 
Craig Hemke at Sprott Money posted a bit that includes a link indicating that US banks will also abide the Basel 3 NSFR rule for gold:

www.sprottmoney.com

Basel III and COMEX Gold

www.sprottmoney.com www.sprottmoney.com

It looks like the COMEX banks might be closing out their shorts in anticipation of the rule change.
 
I think he makes some good points. Having less liquidity / lower volume in the markets doesn't in and of itself predicate a rising or falling price. There will likely be stronger volatility as the momentum pendulum swings though. If physical stores (gold especially) really are as tight as is being reported though,. a less liquid market is likely to reflect that with rising prices. We'll see.
 
I got a good laugh out of the UBS quote at the end. Typo by Reuters or Freudian slip by UBS rep... Who knows. But the "gold cleaning" shall continue.
 
Reviewing this conversation from a few months ago. Nothing much has changed with the gold price that I noticed. Its seems to be range bound around ~1800 give or take $50. Volatility isn't really any different from before.

I did see some reports* that implementation of Basel 3 has been delayed a year due to Covid, so that might be a factor.

* Like this one:
...
The rules have already been delayed a year to January 2023 due to COVID.
...
Click to expand...

UPDATE 1-Bank of England says COVID hitting timing of Basel bank capital rules | Financial News

UPDATE 1-Bank of England says COVID hitting timing of Basel bank capital rules | Financial News
www.lse.co.uk www.lse.co.uk
 


Andrew McGuire says Basel 3 NSFRs took time to be fully implemented, but are now constraining the paper markets. 41min long video rambles a bit IMO, but BIS and gold lease talk vis a vis Basel 3 begins around the 14 minute mark.

tldw: BIS getting ready for gold revaluation. The revaluation is coming soon.
 
The Federal Reserve Board of Governors will hold an open meeting next Thursday to discuss a forthcoming proposal related to the final implementation of the Basel III international regulatory framework.

The meeting will be held at 1 p.m. at the Martin Federal Reserve Board Building in Washington and streamed live on the Fed's website, according to a notice published by the Fed.

A copy of the proposed rule — which is set to call for enhanced risk-capital requirements for all banks with $100 billion or more of total assets — will be published on the Fed's website roughly 20 minutes before the meeting, according to the notice.

The public meeting could provide a window into the internal debate over the capital rules being considered, some of which have been outlined in public remarks from individual board members.
...
Click to expand...

www.americanbanker.com

Fed to hold open meeting on Basel III endgame proposal

The Federal Reserve Board of governors will discuss the much anticipated capital changes on Thursday afternoon.
www.americanbanker.com www.americanbanker.com

I do not know how or if this will affect gold/NSFRs.
 
Belated follow up to my last post:
On July 27, 2023, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation (“Agencies”) jointly released a proposal for the implementation of the Basel III Endgame—the final round of Basel III capital framework reforms. The complete package of proposed reforms would apply to banks with $100 billion or more in total assets (“large banks”). Additionally, a portion of the reforms related to market risk would also apply to non-large banks with significant trading activities.1
...
Click to expand...

www.forvis.com

The Basel III Endgame – Proposed Revisions to U.S. Regulatory Capital Requirements of Large Banks | FORVIS

The FRB, the OCC, and the FDIC released a proposal for the implementation of the Basel III capital framework reforms which applies to large banks. Read more.
www.forvis.com www.forvis.com

Link to proposal:


I skimmed both links above and did not see any reference to gold or NSFRs.
 
WASHINGTON, Nov 13 (Reuters) - A group of 39 Senate Republicans in a letter on Monday called on major U.S. banking regulators to withdraw a contentious proposal to significantly raise bank capital requirements, warning it could hinder lending and harm the economy.

THE TAKE​

Republicans have been consistently critical of the so-called "Basel III endgame" proposal, but Monday's letter marks one of the broadest, most explicit attempts so far to derail that effort, as lawmakers contend the proposal, if finalized, could curb banks' activity by forcing them to hold more capital.

More:

www.reuters.com

US Senate Republicans urge bank regulators to scrap capital hike efforts

A group of 39 Senate Republicans in a letter on Monday called on major U.S. banking regulators to withdraw a contentious proposal to significantly raise bank capital requirements, warning it could hinder lending and harm the economy.
www.reuters.com www.reuters.com
 
It may mean this Black Friday and/or Christmas might be the last time we see sub-$1900 gold in $USD.
 
Seeking Alpha

Jamie Dimon, other bank CEOs to warn Congress of Basel III endgame risks​

The heads of Wall Street's eight biggest banks will warn lawmakers on Wednesday that the "Basel III endgame" proposal will hurt the economy and hamper lending, according to each of their prepared testimonies.

Regulators in July proposed strengthening regulations by requiring large U.S. banks to set aside more capital to absorb potential losses. Banks repeatedly slammed the proposal, saying this is not justified as they are well-capitalized.

More:

https://www.msn.com/en-us/money/com...S&cvid=3727d048987b459baa95b5f655b5b23e&ei=45
 

Exclusive: US regulators expected to significantly reduce Basel capital burden​


WASHINGTON, March 6 (Reuters) - U.S. regulators are expected to significantly reduce the extra capital banks must hold under a proposed rule that has drawn aggressive pushback from Wall Street, said eight industry executives in regular contact with the agencies and regulatory officials.

Bank regulators led by the Federal Reserve in July unveiled the "Basel III" proposal to overhaul how banks with more than $100 billion in assets calculate the cash they must set aside to absorb potential losses.

The agencies said it would increase aggregate capital by around 16% for the roughly three dozen affected lenders. That figure is expected to fall sharply as regulators embark on a sweeping rewrite of the draft, the people said.

The regulatory discussions are in their early stages and no decisions have been made, the people said. The agencies have said they are analyzing hundreds of public comments and data from banks on the impact of the proposal.

The biggest capital savings will come from changes to how banks will have to calculate potential losses from operational risks, which is the costliest plank of the proposal, three people said. In that section, banks had been pushing regulators to reduce the risk weights for fee income associated with lending services, such as investment banking.

More:

 
You must log in or register to reply here.
Back
Top Bottom