The London Bullion Market Association (LBMA) and the World Gold Council (WGC) are lobbying to have gold reclassified under the Basel III banking framework, according to a report published Thursday by India’s Gem & Jewellery Export Promotion Council (GJEPC).
The GJEPC detailed that senior LBMA representatives Paul Fisher, Ruth Crowell, David Gornall, and Edel Tully, along with WGC’s Mike Oswin, met in Basel, Switzerland, with the Bank of International Settlements (BIS). The LBMA-WGC delegation engaged with Neil Esho, Secretary General of the Basel Committee, and Noel Reynolds, Head of Basel III Implementation, to advocate for gold’s classification as a High-Quality Liquid Asset (HQLA).
Reclassifying gold from a Tier 1 asset to an HQLA “would bring about enhanced market stability, improved liquidity, regulatory compliance benefits, greater confidence and trust in the financial system, and overall economic and financial stability,” the GJEPC report highlighted. This reclassification would be advantageous for both financial institutions and the broader economy.
The LBMA reported a productive meeting, noting that the BIS provided assurances regarding the potential reclassification of gold as an HQLA. Discussions focused on the broad criteria for HQLA status and progress in the gold market concerning data transparency.
In support of their case, the LBMA presented a working paper to the BIS containing data that advocates for gold’s classification as an HQLA. David Gornall, in an LBMA presentation from December 2023, indicated that this paper is part of a larger study examining gold’s potential as an HQLA in today’s financial landscape.
“The research aims to present evidence that gold meets the criteria of a Level 1 HQLA under Basel III regulations,” Gornall stated. “It underscores gold’s resilience, liquidity, and stability, particularly in times of financial stress.”
Gornall’s presentation highlighted several elements supporting gold’s classification as an HQLA. These include its fundamental characteristics such as “high credit standing, low legal risk, and denomination in USD,” and market characteristics like “low volatility, negative correlation with risky assets, and active and sizable market.”
“Gold meets all four fundamental and three market characteristics for HQLA,” Gornall asserted.
The joint delegation also shared additional findings from ongoing academic research, which further substantiates gold’s qualifications. They received constructive feedback on the additional information required by the committee to move forward with the reclassification process.
