by: Chris Powell
Pending “Basel III” regulations emanating from the Bank for International Settlements could destroy the clearing and settlement system for “unallocated” – that is, “paper” or imaginary – gold and silver, the London Bullion Market Association and the World Gold Council warned the Bank of England this week.
In a 58-page protest submitted to the Bank of England’s Prudential Regulation Authority, the LBMA and the World Gold Council complained that the “Net Stable Funding Ratio” provision of the Basel III regulations would require the London bullion banks to hold funds offsetting 85 percent of the value of the unallocated gold they hold for customers, and the banks could not afford this.
Most precious metals held by the LBMA’s trade-processing banks, operating as the London Precious Metals Clearing Ltd., are “unallocated” metal, the protest says.
According to the protest, the new rules will have a “damaging effect” on the precious metals clearing and settlement system, “potentially undermining the system completely.”
The protest continues: “The required stable funding for short-term assets would significantly increase costs for London Precious Metals Clearing Ltd. clearing banks to the point that some would be forced to exit the clearing and settlement system, which may even be at risk of collapsing completely.”
The protest acknowledges that LBMA-member banks obtain gold loans from central banks and re-lend the metal “to support the liquidity of the market,” the longstanding euphemism for central bank intervention to suppress monetary metals prices and support government currencies and bonds.
The LBMA and World Gold Council protest is dated May 4 and is posted at the LBMA’s internet site here.
In an interview posted last Friday, London metals trader Andrew Maguire called the LBMA-WGC protest a surprising confession of weakness.
Maguire construes the Basel III regulations as an attack on the “paper gold” mechanism of gold price suppression, a trigger for an upward revaluation of gold, and thus an attack against the domination of the currency markets by the U.S. dollar.
Maguire’s interview is posted at YouTube here.