The Conversation (0)
Reuters reported that according to the London Bullion Market Association (LBMA), new liquidity rules could raise costs for gold-trading banks in the EU by 300 percent. Those banks could then be forced to withdraw from the market.
Reuters reported that according to the London Bullion Market Association (LBMA), new liquidity rules could raise costs for gold-trading banks in the EU by 300 percent. Those banks could then be forced to withdraw from the market.
As quoted in the market news:
Banks were found to be undercapitalised after the financial crisis began in 2007, forcing taxpayers to bail out many lenders and prompting the development of a global set of tougher rules known as Basel III.
The rules treat physically traded gold the same as other commodities, meaning banks trading the metal would have to carry more cash and cash equivalents as a proportion of their gold exposures to act as a buffer if there is an adverse move in the gold price.
In Basel III’s language, gold’s liquidity “haircut” is increasing to 85% from 50%. This percentage is used to help calculate a so-called liquidity buffer known as the net stable funding ratio (NSFR) that all banks must hold from 2018. The higher the figure, the more funding is needed to meet the overall NSFR requirement.
This, the LBMA and other industry bodies argue, makes funding gold transactions for commercial banks difficult and increases the cost of doing business.
