Saturday, 30 June 2012


"Bank of International Settlements: Gold Becomes a Tier 1 Asset Class for Banks

Posted on June 30, 2012

The Basel Committee for Bank Supervision (BCBS) is about to decide something crucial to bankers, sovereign nations, and gold investors alike.

As part of the Bank of International Settlements (BIS), the BCBS is reviewing the upcoming new Basel III rules. That may sound arcane to you but I promise it is not. Though rarely discussed in the mainstream press, the all-important Bank of International Settlements is essentially a global central bank to the world’s central banks. Its goal is ostensibly to provide global stability to the monetary and financial systems.

In a surprise twist that only a few years ago would have been considered preposterous, the BCBS is entertaining whether gold should qualify as a full-fledged Tier 1 capital asset. Currently, the precious metal is relinquished to a Tier 3 status, deserving no more than a 50% weighting at that.

Here’s why that distinction is important and potentially astonishing.
Achieving Tier 1 status would credit gold with the recognition it’s been denied ever since Nixon closed the gold window on August 15, 1971.

"Clearly, gold has gained favour not only with the world’s largest money managers, but even with central banks which are now accumulating the metal at a growing pace. Right now it’s the perfect storm of ongoing aftershocks of the 2008 financial meltdown and the unrelenting rise and strength in the price of gold that may help it regain the financial respect it deserves.

Today, it seems even the BIS and commercial banks, those relentless proponents of fiat money, could well be forced to admit what’s becoming increasingly clear: gold is real money, free of both counterparty and credit risk.

An increase from 4% to 6% Tier 1 capital requirements, together with a favorable revision as a full-fledged Tier 1 asset, could combine to trigger the next massive upleg in the gold secular bull market."

Federal Reserve Mulling New Gold Regulation; ‘May be biggest event in gold market since US dropped gold standard’

US authorities have recently called for comment on a rule change that may impact the gold market.

The US Treasury, Federal Reserve and the FDIC have jointly sought comment on changing some capital adequacy rules for when an institution holds gold in its own vaults or in another’s vaults.

According to the draft documents released, when gold is currently held as an asset, it is risk weighted at 15% – that is, a 15% haircut is taken on its current value for capital adequacy calculations. (See page 86 of the attached Federal Reserve document.)

However, in this same document, they are proposing that there be no (zero) discount.

That would then put gold on the same basis as cash.

217.131 Mechanics for Calculating Total Wholesale and Retail Risk-Weighted Assets.

(i) A bank holding company or savings and loan holding company may assign a riskweighted asset amount of zero to cash owned and held in all offices of subsidiary depository institutions or in transit; and for gold bullion held in a subsidiary depository institution’s own vaults, or held in another depository institution’s vaults on an allocated basis, to the extent the gold bullion assets are offset by gold bullion liabilities....."

The White Rabbit

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