Refiners lash out at regulators plans to force banks cover gold holdings

Gold refiners are up in arms against regulators’ plans to force banks use longer term funding against their holdings of the yellow metal, as they believe the measure will make jewellery a lot more expensive for consumers.

Ruth Crowell, head of the London Bullion Market Association, explained the process to Financial Times (subs. required):

Banks lend gold to refiners, which typically use it to pay suppliers and customers, but under new rules proposed by the Basel Committee on Banking Supervision, the costs to banks could triple.

Under the new rules, Crowell added, financial institutions will need a higher ratio of longer term, more pricey funding against the precious metal on their balance sheets. This, because regulators do not consider gold to be a high-quality liquid asset.

Banks have been affected by major changes this month. A new set of rules went into effect on Oct. 14 to prevent a run on the industry, such as what happened in 2008 after a fund that held Lehman Brothers debt collapsed.

Money-market funds were never supposed to lose money, and in the ensuing panic, investors pulled nearly $150 billion from the industry in a week. That move choked off cash for US companies and global banks, threatening to deepen the crisis.