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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).
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So what does the mixed reporting suggest might happen Bug ?
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The cash deposit required to back gold holdings seems like a great way* to suppress price )-:
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.
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).
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.
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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.
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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.
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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. ..."
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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
... 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. ...
Is the BIS throwing down a guantlet or is this really all coordinated by some big boys club?
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The rules have already been delayed a year to January 2023 due to COVID.
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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.
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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
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