What the Swiss banks' move away from unallocated accounts says about gold, and about banking...

IMAGINE you could sell someone something, but keep ownership of it, and then use it yourself, writes Adrian Ash at BullionVault.

You could lend it out for interest, say, or raise loans of your own by pledging it as collateral. Or even sell it to raise cash when things get tight. And if your business fails entirely, the "owner" will just have to cue up with all of your other creditors, and be thankful with whatever small change is paid out by the courts.

This is pretty much what big banks get away with in gold – or they did. Now Swiss banking giants UBS and Credit Suisse are changing their gold-account fees for big, institutional clients. The aim is to discourage other institutions from keeping gold with them like this – so-called "unallocated gold". It looks a lot like putting cash on deposit. The bank gets to own it, and so it gets to go banking with the value as well. But now the business of selling gold but without selling anything no longer pays.

And if you can't make a return from that, what hope is there for big banking bonuses in 2013 or beyond?

You might wonder if this news has something to do with the collapse of gold interest rates...

...but as you can see, there hasn't been much money to make in lending out gold – whether it belongs to you or not – for nearly a decade now. Yes, the collapse in cash interest rates played a part in that switch. (The returns above are what a gold lender makes after paying a borrower to take it away, receiving the gold's cash value in return, and then lending out that money instead. Just another oddity of the gold market.) But the slump in lease rates came as gold miners stopped borrowing gold, selling it for fear of further price falls, and instead began expecting higher prices for their future output. And lending was never really the point of unallocated gold accounts at the big banks anyway.

Instead, from what our friends in gold banking and Swiss bullion storage tell us, the big banks were keen to get big piles of shiny metal which they could then show to regulators. "Look, all this belongs to us, and not to clients," they could say, before going out and banking with it – investing, borrowing and lending with that weight of highly liquid, instantly priced bullion behind them. Or at least, banking with a hefty part of its value.

Most especially in Switzerland, the big banks gathered such unallocated gold from their smaller competitors – those private Swiss banks caring for very wealthy customers, but lacking the secure, underground gold vaults which such well-heeled clients might expect. Perhaps the big banks could help? Sure they could. But only if a chunk of the client's gold wound up on the big bank's balance sheet too.

Whatever the proportion of allocated to unallocated gold, this meant confusion for any private-bank customer wanting to own his or her metal outright. Because the bullion was now split between the big bank's balancesheet and the private bank's own account in the vault. So the actual client was a long way from fully allocated. Come a banking crisis – not that such things ever happen of course, until they do – he or she would most likely find themselves exposed to not one but two Swiss institutions.

Now, if this unallocated gold trail hadn't existed, neither would BullionVault today. Paul Tustain founded it in 2003 precisely because of the confusion – and risks – he encountered when trying to buy gold for himself a year earlier. The Financial Times, which broke the new move last week, explains the background:

"Under the more common 'unallocated' gold accounts, depositors' gold appears on banks' balance sheets. [But as regulations change, that is] forcing them to increase their capital reserves."

Just as with any loan the bank takes in – including household and business deposits – it has to match at least some of that debt with ready cash. Or rather, with reserves held at the central bank. This was always the way, but 2013 sees new regulations – aka Basel III – raise the requirements to try and avoid a repeat of 2007 and all that. Before now, offering unallocated gold at least put bullion onto the bank's balancesheet. But with these new regulatory hassles and thus costs (money unlent is dead money to banks, remember) unallocated gold has suddenly become lose-lose to the banks.

This marks a big shift in the banks' provision of gold, and there is more on this to come no doubt. Such as how the Swiss giants – who provide a lot of gold-vaulting to the smaller Swiss private banks – are actually raising their unallocated fees by 20%, as the press report. Unallocated gold shouldn't cost you an ongoing fee, because why would you pay to store something which isn't yours? On the other side, according to Dow Jones' report, they are actively cutting their allocated storage fees too. Suggesting perhaps that either they'd like to get the private-banks' clients directly. Or they've got a lot more spare capacity in Swiss vaulting than earlier press reports would suggest.

Either way, private savers trying to hide out in gold aren't likely to see vaulting fees drop. Swiss private banks charge 1% and more per year to their clients, and a 1/100th of a per cent drop in their costs is unlikely to show up in their "retail" pricing. (BullionVault is best-value worldwide, by the way, at 0.12% per year for specialist non-bank, fully allocated storage in your choice of Zurich, New York or London.)

So for now, this change simply marks another key stage for gold and for banking. One is making a long return as a core asset to be owned outright. The other is struggling to cream off the kind of fat margins which once paid so well.