REGULATORS should consider allowing banks to hold Gold Bullion as part of their mix of assets held to meet short-term liquidity needs, according to representatives of two major European lawmaking institutions.
The Basel Committee on Banking Supervision has drawn up new rules – collectively known as Basel III – aimed at strengthening banks' capital adequacy positions. Negotiations are ongoing as to what assets should qualify as high quality liquid assets, to be converted by institutions to cash in order to meet liquidity needs for a 30 day period.
The European Commission has asked Europe's main banking regulator, the European Banking Authority, to assess which assets should be eligible. The continent's two other lawmaking bodies meantime "have taken a harder line" in supporting the case for Gold Bullion, notes Natalie Dempster, director, government affairs, at market development group the World Gold Council.
The European Parliament's chief negotiator on Basel III, Othmar Karas, "explicitly included gold as one asset the EBA should consider" writes Dempster in the latest issue of Alchemist, the quarterly publication from London Bullion Market Association. The Danish Presidency, which is chairing negotiations among member nations of the third lawmaking body the European Commission, has also said Gold Bullion should be considered.
"Global policymakers are increasingly recognizing new financial uses for gold," writes Dempster.
"Last year, the European Parliament voted unanimously to include gold as a form of highly liquid collateral in the European Market Infrastructure Regulation."
Earlier this month, Dempster notes, Gold Bullion was again included in recommendations on permissible collateral to use for non-centrally cleared over-the-counter derivative contracts.
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