Bank of England’s Prudential Regulatory Authority & Basel III
LBMA Says Gold is Liquid Enough
Bank of England Provides Exemption on Basel III. A regulator in Britain stated that banks clearing gold trades in London could apply for an exemption from the tighter capital rules due in January 2022. This would remove what some view as a threat to the functioning of the market.
London is known throughout the world as the largest physical precious metals trading centre. London’s clearing system is operated by a handful of large banks with access to metal in their vaults. It’s been reported that they settle gold transactions worth approximately $30 Billion USD a day.
The upcoming rules, known as the net stable funding ratio (NSFR), are part of the new Basel III regulations. Its is designed to make banks more stable and prevent a repeat of the financial crisis of 2008-09.
Physically traded gold is treated like any other commodity. This requires banks to hold additional cash to match their gold exposure as a buffer against adverse price moves.
The LBMA says gold is liquid enough… no need for an additional liquidity buffer for clearing and settlement and short-term transactions.
The London Bullion Market Association (LBMA), the gold industry body, has lobbied against the new regulations. It says they are unnecessary and could force a number of banks – including clearing banks – to stop trading.
The Bank of England’s Prudential Regulatory Authority Meeting
After meeting, the Bank of England’s Prudential Regulatory Authority (PRA) stated that it had “decided to amend its approach to precious metal holdings related to deposit-taking and clearing activities.”
The Regulatory Authority said it had introduced an “interdependent precious metals permission”. The effect will reduce the size of the required capital buffer.
Sakhila Mirza, the LBMA’s chief counsel stated the following; “This is one of the key points that what we’ve been asking for all these years,” “Clearing will be exempt.”
The PRA stated that it will not classify gold as a high-quality liquid asset. This would have freed other trades such as precious metals loans and leases from the high capital requirement.
The London clearing banks are JPMorgan, HSBC, ICBC Standard and UBS. When asked, JPMorgan declined to comment, and the others have yet to respond to these developments.
