“Clarity Regarding Basel III” by DW – 6.18.21

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Entry Submitted by DW at 4:47 AM EDT on June 18, 2021

I feel I need to correct a month-long misunderstanding regarding the Basel III implementation timeline that so many are looking at to be a RV date. The information below is from the website of the Financial Stability Board.

Basel III – Implementation – Financial Stability Board (fsb.org).

Full, timely and consistent implementation of Basel III is fundamental to a sound and properly functioning banking system that is able to support economic recovery and growth on a sustainable basis.  Following a one-year deferral to increase the operational capacity of banks and supervisors to respond to COVID-19, these reforms will take effect from 1 January 2023 and will be phased in over five years.

(Please read the last sentence again – Basel III requirements do not start until 1/1/23 – 18 months from now. It was previously set to start on 1/1/22 – not a date in June 2021.  And worldwide banks have until 1/1/2028 to be in full compliance with Basel III. Basel III are international GUIDELINES – not enforceable mandates. Each country can establish their own banking rules.)

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Basel III: A Gift For Physical Gold Investors | Seeking Alpha

(This is where someone found the June 28th date – nothing to do with banks in USA.  Also these dates were very likely taken from a Basel III/FSB article issued before the COVID related 1 year postponement of the Basel III implementation due dates. If you google for Basel III, most article are from 2017.)

This information on “Seeking Alpha” was provided by — Anna Sokolidou, who provided this background description: “A research analyst and a freelance writer looking for value investment opportunities. I am mostly interested in writing about bargain stocks of large companies. My interest is not limited to American companies but extends to firms operating in other countries but listed on US stock exchanges.” 

Summary

  • Basel III agreement will come into force on June 28, 2021 for EU banks and on January 1, 2022 for British banks. 
  • It includes the Net Stable Funding Ratio (NSFR) requirement. It will make holding unallocated gold problematic. But the NSFR requirement is bullish for allocated gold.
  • According to the Basel III framework, gold will become a zero-risk asset.
  • Overall, Basel III will be great for physical gold.

Under Basel III, gold would become a Tier 1 asset or a zero-risk asset, for banks. As mentioned in the Basel III framework:  …at national discretion, gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%

But the interesting point is that gold must be physical and held in the institution’s own vaults (that is not exactly what the Basel quote above says – gold can also be held on an allocated basis). It should not be in paper form or owned and leased by someone else. Most gold investments are leased or borrowed or held in paper form. So, it looks like major changes are about to come.

Since gold will have such a risk-free status, many banks will be encouraged to buy more for bookkeeping purposes. This will also highly encourage every central bank to raise its physical reserves of this shiny yellow metal.  (Remember this is a freelance author’s opinion.) 

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Seeking Alpha — below is from their webpage. (The folks posting article on this website are NOT professional financial advisers, so their interpretation of Basel III rules needs to be taken with a sizable grain of salt!)

Seeking Alpha is the world’s largest investing community. Powered by the wisdom and diversity of crowdsourcing – millions of passionate investors connect daily to discover and share new investing ideas, discuss the latest news, debate the merits of stocks, and make informed investment decisions. Available on mobile, tablet or desktop, 20 million people use Seeking Alpha every month.

DW in Upstate SC

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