Basel III & Gold: The Big Picture
“Basel III is part of the banks getting ready for the next financial crisis.”
– Mike Maloney
Maloney continues that the advent of Basel III, “they’ve gone from gold being a pretty risky asset because of the volatility in price, to gold being a zero percent risk asset.”
“That’s a little bit like, saying, we should be on a gold standard.”
Mike Maloney Sounds off on Basel III and Gold in Latest Podcast
While gold bugs have been wrong for years and years, Maloney is right that gold will soon be considered a zero percent risk asset. But mainstream media outlets are missing this change in Basel III. First off, let’s explore via Investopedia.com what Basel III consists of:
“…an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector.”
Banks are keeping more Tier 1 capital on their balance sheets.
“In comparison to Basel II, Basel III strengthened regulatory capital ratios, which are computed as a percent of risk-weighted assets. In particular, Basel III increased minimum Common Equity Tier 1 capital from 4% to 4.5%, and minimum Tier 1 capital from 4% to 6%. The overall regulatory capital was left unchanged at 8%.”
Nowhere on the lengthy description of changes between Basel II and Basel III does it mention that gold will soon be a Tier 1 asset.
To that end, in the past when banks held gold reserves only half of its market value could be applied towards solvency requirements.
According to a Zero Hedge article from November,
“But under Basel III, monetary gold now qualifies as a Tier 1 asset, and is 100% valued for the purposes of banking viability.”
Maloney concludes his interview with a graph showing the average predominant currency status going back to the 1400s. The average time a currency can be dominant globally is 94 years. Prior to the U.S. taking over, Great Britain’s currency reign lasted 105 years. The U.S. has seen the greenback atop the world for the past 98 years and counting. It will end, the question is when and under what circumstances.
With the advent of Basel III, central banks and investors now have another great reason to add gold to their reserves and portfolios.