I've read a few posts re gold becoming a tier 1 asset for commerical banks with 100% weighting in the US (it's currently a tier 3 asset with 50% weighting). This is even more relevant as Basel III proposes banks' tier 1 holdings must increase from 4% to 6%. There have been a few articles suggesting this may occur. Most are saying it's being discussed (which I suspect is the truth), like this: http://www.mineweb.com/mineweb/view/mineweb/en/page103855?oid=152291&sn=Detail&pid=102055 An Aussie gold seller even quoted Wealth Wire (big gold bugs themselves) as if it's been adopted already but they are incorrect: https://www.ainsliebullion.com.au/g...et-class-for-banks/tabid/78/a/79/default.aspx The official FDIC *proposal* can be seen here: http://www.fdic.gov/news/news/financial/2012/fil12027.html Others are saying it's not true at all, whilst there's a spruiker selling his newsletter as if it's official and that the gold standard will be returning on Jan 1, 2013!: http://www.angelnexus.com/o/web/39660 Anyone got some more recent info on this potential development of gold becoming a tier 1 asset?
Some more info was posted recently on this by Eric Sprott (from http://sprottasset.com/markets-at-a-glance/gold-solution-to-the-banking-crisis/): It is our understanding that gold's reference as a "zero percent risk-weighted asset" in the FDIC and BIS literature only applies to gold's "credit risk" - which makes perfect sense given that gold isn't anyone's counterparty and cannot default in any way. Gold still has "market-risk" however, which stems from its price fluctuations, and this results in the bank having to set aside capital in order to hold it. So for banks who hold physical gold on their balance sheet (and we don't know of any who do, other than the bullion dealers), the gold would not be treated the same as cash or AAA-bonds for the purposes of calculating their Tier 1 ratio. This is where the gold community's conjecture on gold as a "Tier 1" asset has been misleading. There really isn't such a thing as a "Tier 1" asset under Basel III. Instead, "Tier 1" is merely the ratio that reflects the capital supporting a bank's risk-weighted assets. HOWEVER, Basel III will also be adding an entirely new layer of regulation concerning the relative liquidity of the bank's assets and liabilities. This will be reflected in two new ratios banks must calculate starting in 2015: the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). <image removed> Just as Basel III requires risk-weights for the asset side of a bank's balance sheet (based on credit risk and market risk), Basel III will also soon require the application of risk-weights to be applied to the LIQUIDITY profile of both the assets and liabilities held by the bank. The idea here is to address the liquidity constraints that arose during the 2008 meltdown, when banks suffered widespread deposit withdrawals just as their access to wholesale funding dried up. This is where gold's Basel III treatment becomes more interesting. Under the proposed LIQUIDITY component of Basel III, gold is currently labeled with a 50% liquidity "haircut", which is the same haircut that is applied to equities and bonds. This implicitly assumes that gold cannot be easily converted into cash in a stressed period, which is exactly the opposite of what we observed during the crisis. It also requires the bank to maintain a much more stable source of funding in order to hold gold as an asset on its balance sheet. Fortunately, there is a strong chance that this liquidity definition for gold may be changed. The World Gold Council has in fact been lobbying the Basel Committee, the Federal Reserve and the FDIC on this issue as far back as 2009, and published a paper arguing that gold should enjoy the same liquidity profile as cash or AAA-government securities when calculating Basel III's LCR and NSFR ratios.20 And as it turns out, the liquidity definitions that will guide banks' LCR and NSFR calculations have not yet been finalized by the Basel Committee. The Basel III comment period that ended on October 22nd resulted in the deadline being pushed back to January 1, 2013, and given the recent delays with the US bank regulators, will likely be postponed even further next year. Of specific interest to us is how the Basel Committee will treat gold from a liquidity-risk perspective, and whether they decide to lower gold's liquidity "haircut" from 50% to something more reasonable, given gold's obvious liquidity superiority over that of equities and bonds. The only hint we've heard thus far has come from the World Gold Council itself, which suggested in an April 2012 research paper, and re-iterated on a recent conference call, that gold will be given a 15% liquidity "haircut", but we have not been able to confirm this with either the Basel Committee or the FDIC.21 In fact, all inquiries regarding gold's treatment made to those groups by ourselves, and by other parties that we have spoken with, have been met with silence. We get the sense that the regulators have no interest in stirring the pot by mentioning anything related to gold out of turn. Given our discussion above, we can understand why they may be hesitant to address the issue, and only time will tell if gold gets the proper liquidity treatment it deserves.
On the face of it this seems good. But couldnt this just be a way to help the banks meet the new tier 1 asset requirements using a large portion of what they already own? i.e. They need to move from 4% to 6% in tier 1 assets. If they already hold gold as a tier 3, which is then reclassified as a tier 1 then they just move it over a few columns in their balance sheets and add 50% to its value for the purposes of asset tests. It doesnt necessarily mean they go out and buy a big pile of the shiny stuff. Just my .2cents... being the eternal pessimist
Does it really matter if gold is a tier 1 asset. International bankers report gold in the vault and gold loaned out as one line item on their balance sheets.
True, but it would make banks think twice about selling their gold as well consider buying more than they otherwise would have you'd think.
Now that must be a record. Quoting yourself when there hasnt been a reply to boost your post total.... GP, tell him what hes won!
Sargeant Argent/Phiber, Were you guys referring to me? I've got some trades to my name that others can confirm is not whoever you're claiming I'm meant to have another account as? Anyhow, came to add to this post that there are still people claiming that the shift to tier 1 will happen, which I think is ridiculous with only a couple days left to the supposed date!
I don't think this has anything to do with you tch. See post #10. I think the admins have cleaned up the thread so it is a bit confusing unless you saw it happen at the time.
i.e. They need to move from 4% to 6% in tier 1 assets. If they already hold gold as a tier 3, which is then reclassified as a tier 1 then they just move it over a few columns in their balance sheets and add 50% to its value for the purposes of asset tests. It doesnt necessarily mean they go out and buy a big pile of the shiny stuff. Surely this would mean..if you had 100k mortgage for example that the banks would accept 100k worth of gold to wipe the debt ?? I recently rung up the commbank Helpdesk one afternoon just to enquire about mortgages etc..my first few questions were standard questions..wanting to know if there was any penalties for paying the loan off quicker then the 25-30 years, the lady was very prompt and answered in a friendly manner...my next question was " if I had 100k loan and wanted to pay that off in gold..would you accept the gold as payment" her whole tone changed when I asked that question...I was basically made to feel like if I have gold that I was crazy..the conversation lasted maybe another minute after that. But wouldn't that happen if gold became a tier 1 asset..the banks would have to accept it as payment/money ?
They don't have to accept it as payment but they might be willing to accept it as collateral so they could take it in the event that you stop making repayments on your loan. Gold's "tier status" is about acknowledging it's value as collateral, not whether it's suitable for use in normal transactions. By way of example, you wouldn't make monthly mortgage repayments with shares in BHP, even though the bank might be willing to take your share portfolio into account when they decided to give you the loan initially.
Btw good job for verifying stuff around. It's rare to see someone checking instead of just parrotting it as true. About gold being flagged by banks as Tier 1 or not, I evade everything that central banks mess with, and that includes gold. Why do stackers buy hold? To hedge against the fiatcurrency inflation of central banks. Why do central banks buy hold? To inflict stackers losses.
Thanks for that. As to this risk weighting, this is mostly aimed at commercial banks IIRC so it's still relevant for us stackers. Hell, even some of the biggest gold bugs recently have been saying that the mania phase for gold won't truly kick in until the big investment banks that have been anti-gold go long or buy in (with some likely to be currently shorting gold/silver). It will happen IMO - just a case of when. As to central banks, as has been discussed many times by various people, they're usually late buyers and with all the leasing going on that's where the real price suppression supposedly takes place. Interesting recent revelation here from an old IMF report from '99: http://kingworldnews.com/kingworldn...ld_Evidence_Panics_Western_Central_Banks.html
