Stuart Englert: Basel III and Gold — What Does it Mean, Why Does it Matter? | Summary and Q&A

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June 25, 2021
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Stuart Englert: Basel III and Gold — What Does it Mean, Why Does it Matter?

TL;DR

Basel III, a set of banking standards introduced after the 2007-2008 financial crisis, could impact the gold market by reducing manipulation and increasing physical demand.

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Questions & Answers

Q: What is Basel III and why was it developed?

Basel III is a set of banking standards introduced to improve balance sheets and reduce the systemic risk of the global financial system. It was developed in response to the 2007-2008 financial crisis triggered by the collapse of Bear Stearns and Lehman Brothers.

Q: What is the NSF ratio, and which banks are affected by the rule change?

The NSF ratio, which goes into effect on June 28th, changes the way banks classify assets and liabilities on their balance sheets. Initially, only European banks are affected, with British banks implementing the rule change in January and the United States following next month.

Q: How does Basel III impact the gold market?

Basel III could impact the gold market by reducing manipulation and increasing physical demand. If fully implemented and adhered to, more banks would want to hold physical gold, potentially boosting its price.

Q: Is the implementation of Basel III legally binding, and who decides when to implement it?

Basel III is a voluntary regulatory framework, and each country's banking authorities decide on its implementation. The implementation dates have been postponed several times since the standards were proposed, and further deferrals are possible.

Summary & Key Takeaways

  • Basel III is a set of banking standards designed to improve balance sheets and reduce systemic risk in the global financial system, introduced after the financial crisis triggered by Bear Stearns and Lehman Brothers' collapse.

  • The rules were written by the Bank for International Settlements (BIS) and aim to enhance bank capital requirements.

  • European banks will be the first to be affected by the new rule changes, with the Net Stable Funding Ratio (NSF ratio) going into effect on June 28th.

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