by Alasdair MacLeod
Gold Money
The draft PRA rules complying with Basel 3 regulations have now been issued six months ahead of their implementation to allow banks to adjust for them in time. From now, senior bankers, their lawyers and bank treasury managers will be planning amendments to their business strategies accordingly.
As a division of the Bank of England, the Prudential Regulation Authority recognises the importance of gold trading in London and has inserted a clause into the new rules (Article 428f) which will allow the LBMA’s centralised settlement system to continue to function. But in line with Basel 3’s apparent determination to get banking’s exposure to uneven derivative positions substantially reduced, net positions in precious metal derivatives in the form of forwards and swaps will be penalised through their inefficient use of balance sheet resources and will likely be replaced by transactions fully backed by physical gold.