The Basel Committee on Banking Supervision (hereinafter - the Committee) is closely associated with such a supranational structure as the Bank for International Settlements in Basel (BIS), which is often called the club, the headquarters of central banks or the “Central Bank of Last Resort”. The committee was established on the basis of the BIS by the leaders of the central banks of ten countries (G10) at the end of 1974 to develop common international rules in the field of banking supervision after an imbalance in international currency and banking markets caused by the collapse of Herstatt Bank in West Germany. The committee formulates general standards for banking supervision and recommendations for their implementation. As for G10, this is a group of countries that signed a general agreement with the IMF on granting loans in 1962 (Belgium, Great Britain, West Germany, Italy, Canada, the Netherlands, France, Sweden, the USA, Japan). Switzerland, not a member of the IMF, joined them in 1964, but the group name remained the same. From the very beginning, representatives of Luxembourg were also members of the Basel Committee, and from 2001 also representatives of Spain. Now the Committee includes representatives of central banks and national banking supervisors of 27 countries (already mentioned 13 countries, as well as having joined the Committee in 2009 of Argentina, Australia, Brazil, China, Hong Kong, India, Indonesia, Korea, Mexico, Russia, Saudi Arabia, Singapore, South Africa and Turkey). Over the incomplete four decades of its activity, the Committee has issued dozens of documents on various areas of activity, including on general issues of oversight, on capital adequacy, on various types of risks, on corporate management of credit and deposit organizations, etc.
The key activity of the Committee is the determination of capital adequacy standards for banks. All documents of the Committee revolve around a very straightforward proportion: equity: bank assets = capital adequacy ratio.
Kabbalists of the monetary world are looking for the magic number of this proportion, which would ensure the stability of the banking system. In fact, the Committee seeks to legitimize what is a crime. In Europe, there has long been a system of so-called partial or incomplete coverage by banks of their obligations. Such a system allows banks to make money out of thin air. For example, under 1 a dollar of legitimate money placed by depositors on a deposit account, banks are allowed to issue non-cash (credit) money in loans of 5 or 10. Previously, it was called counterfeiting and strictly punished by law. Today, this is called the “norm”, “principle” of banking activity, legalized by laws, and in textbooks on economics is designated by the term “money multiplier”. The principle of “partial” coverage (reservation) is “covered” by a supranational structure called the Basel Committee on Banking Supervision, which gives the principle the appearance of respectability.
No standards and formulas eliminate the main consequence of the "partial" coverage (reservation) of obligations - banking crises. For nearly four decades of the Committee’s existence, the world has witnessed countless bank failures and banking crises. To prevent such troubles, you need 100-percentage coverage of obligations, but then banks lose the opportunity to engage in their “money alchemy”. A strict taboo was imposed on an honest discussion of the problem of “partial” reservation in central banks and the Committee: they are trying to convince the public that they can invent a “magic formula” of capital adequacy so that banks can still make money out of thin air. This is a frank deception.
"Basel-I" and "Basel-II" - straws for drowning people
Until the end of 2012, the Committee put into effect two fundamental documents defining the “magic formula” of capital adequacy and recommending the use of this formula to the national banking supervisors, Basel I and Basel II. The first one was born in 1988 year and had a very solid title “International Convergence of Capital Measurement and Capital Standards” (Basel-I). This agreement defined the minimum amount of capital adequacy - 8%, calculated as the ratio of equity (regulated by the supervisory authority) to risk-weighted assets. Only credit risks were taken into account (although assets of banks can be formed not only from loans, but also from investments). In fact, the Committee was given a “go-ahead” for financial and monetary orgy, which in the textbooks on economics is called respectfully “the development of money and financial markets”. Markets began to become covered with “bubbles”, “bubbles” began to burst, the real economy and ordinary citizens suffered heavy losses. To date, more than 100 countries of the world, according to official statements, adhere to the norms of "Basel-I".
At the turn of the century, a new version of the standard called Basel-II began to be prepared; this standard was launched in 2004. The new version had extremely weak attempts to take into account new banking risks (besides credit), in particular due to the rapid development of markets derivative financial instruments (derivatives), the emergence of hedge funds and other institutional speculators with which banks are closely associated. At the height of the implementation of the new standard, the financial crisis of 2007-2009 broke out. He once again demonstrated that the standards of Basel are nothing more than a fig leaf covering the outrage of world money lenders. Basel II could not cure them of greed, before the eyes of all, the global banking business giant Lehman Brothers went to the bottom, and at least a trillion dollars in the United States and about the same in Europe had to be spent to save others. There were even attempts to prove that it was the introduction of Basel II that provoked the beginning of the financial crisis, because Banks decided to use excessively risky ways to attract such capital to replenish the lacking equity capital, were forced to go on falsification and outright deception (misrepresentation of financial statements, extensive use of off-balance sheet operations, etc.). During the financial crisis, the Committee began frantically making changes and amendments to the Basel II standard.
Features of "Basel III"
In the end, there was a document that was called "Basel III". The proposals of Basel III were approved at the G20 summit in Seoul in November 2010. The summit participants also approved the timeline for the phased implementation of the standard. The 1 date of January 2013 was defined as the start date. The new document is an extremely complex and voluminous document - it has about 800 pages. I want to draw attention to the following of its features:
1. The deadlines for the implementation of the standard are stretched to 2018; in other words, the standard is not “rigid”, it gives banks enough time to maneuver;
2. The level of banks' own capital adequacy is raised, but not so much that new crises can be avoided;
3. The role of the “subjective factor” in the evaluation of the bank by the supervisory authorities is increasing;
4. In the structure of equity, gold plays a special role as a financial asset.
In my opinion, the last feature is the main one; it is a qualitative innovation that distinguishes Basel III from Basel II.
In the previous standards of Basel, only cash (in all countries classified as “legal tender” - legal tender) and government debt securities - bonds of the ministries of finance and treasuries were considered to be high-quality equity. And not all bonds, but only those that receive the highest rating from leading international rating agencies. For a long time, US Treasury bonds were considered the most qualitative element of equity. That is, the banks of those countries that participated in the “Basel” of the first and second generation should have helped Uncle Sam by purchasing his bonds and closing the holes in the US budget. Thus - to support the US dollar and act against gold as the main competitor of the "green paper".
Basel III: partial gold rehabilitation
Until the 1970s, when the Bretton Woods monetary system existed in the world and there were no Basels yet, everything was different. Banks were evaluated primarily by the amount of gold that constituted equity. The more gold was in relation to the entire amount of capital and the entire amount of assets, the more reliable was the bank. Everything was simple, understandable and logical. But those good old days ended with the collapse of the gold standard and the decision of the IMF to implement the complete and final demonetization of gold. Gold was demoted to ordinary commodities such as oil, wheat, or coffee. In extreme cases, banks could use gold as an investment object, but this metal ceased to be considered a full-fledged financial asset.
Until now, the Bank for International Settlements (BIS) has kept gold in a “black body”. The “rules of the game” were such that it was not profitable for banks to accumulate gold. At best, bankers looked at the "yellow" metal through the eyes of speculators who buy and sell gold for instant profit.
Basel III sharply raised the status of gold. The new rules provide for the transfer of gold into tier-1 bank capital at the 100-percentage price. Banks have the opportunity to replace their paper assets (primarily bonds of the US Treasury) with yellow metal. Experts estimate that this rule will create additional demand for the precious metal in the amount of at least 1700 tons. There are also higher grades - up to 3000 tons. A number of experts believe that the development of Basel III was carried out with strong lobbying by the Rothschild clan, who is interested in restoring the monetary status of gold in the world. Over the past two centuries, the Rothschilds control the main reserves of gold, participate in the extraction of the yellow metal, and are “market makers” in the precious metals market. Even before the new Standard of the Basel Committee came into force in September 2012, the heads of one of the largest banks in the world, Deutsche Bank AG, which is under the influence of the Rothschilds, made a loud statement that gold was again turned into money. Such a statement caused a painful reaction on the other side of the Atlantic Ocean, primarily in the US Federal Reserve. The head of the Federal Reserve, Ben Bernanke, once again made a statement that gold is not the best kind of money.
It is not difficult to understand that Basel III is a blow to the US dollar and the American economy. The reaction from America was quite tough and operational. At the end of last year, the US monetary and financial regulators (the Federal Reserve, the Deposit Insurance Agency, and the Office of the Currency Controller) reported: they were approached by leading US banks with a statement that the new Basel standards are unbearable for deposit-lending institutions. After that, the Fed and other US financial regulators, in turn, appealed to the Committee and stated that the introduction of Basel III in the United States was postponed, and the date of transition to the new standard was not named. European banks were worried that they thought that if they began to switch to a new standard, they would be uncompetitive compared to American banks. And also refused to go to the "Basel III".
So who got under the banner of Basel III from January 1 2013 of the year? The list is not very long, total 11 countries: Australia, Hong Kong, Canada, China, Mexico, Saudi Arabia, Singapore, Thailand, Switzerland, South Africa, Japan. Here you can add India, which announced its accession to Basel III from 1 on April 2013. It is noteworthy that the list includes four countries from the “golden billion” zone: Australia, Canada, Switzerland, and Japan.
Mysterious is the absence in the list of Turkey. In this country, the wider use of gold in banks' operations is actively encouraged, the share of the yellow metal in its own capital and in the assets of Turkish banks compared to other countries is high. The de facto Turkish banking sector is quite ready to meet the standards of Basel III. As the London Financial Times noted, the policy of the head of the Central Bank of Turkey, Erdem Basque, gave impressive results for Turkish banks: they attracted 8,3 billion US dollars to new deposits through gold programs in the last 12 months, they can now use these funds for lending.
As you can see, in the above list are almost all the leading gold producers: China, South Africa, Canada, Australia. A number of countries from the list are the leading importers of the yellow metal (China, Hong Kong, Switzerland, Sadovskaya Arabia, India). China, included in the group of "gold" leaders, has long given hints about the possibility of turning the yuan into a gold currency. And Switzerland is promoting the project of introducing a parallel currency in the country in the form of a gold franc.
Basel III: a turn of banks towards gold
The introduction of the new rules of Basel can lead to a radical change in the position of banks of individual countries in the global financial system. First of all, it is expected to strengthen the position of Chinese banks, given that China has been ranked first in the world for several years in terms of the volume of production and import of the yellow metal. The positions of those banks that bravely embraced the Basel III flags will also be strengthened because the prices for the yellow metal have shown unprecedented high growth rates over the past 12 years — on average, 17 percent per year. In 2012, the troy ounce of the yellow metal cost 1700 dollars. And the so-called "fair" ("equilibrium") price for the metal, in the opinion of many gold traders, is at least 5000 dollars. Those who managed to get on the “golden train”, having purchased tickets at low prices, have a much better chance of finding themselves tomorrow at the global financial Olympus.
Even those banks that have not yet entered the zone of action of Basel III understand that their future depends on how quickly they can turn towards gold. The statistics of the IMF and the World Gold Council do not provide a clear picture of gold purchases by the entire banking sector. But there are statistics on transactions of sale in the gold market of central banks (CB). After the collapse of the Bretton Woods monetary system, the central banks of the whole world for more than three decades sold more yellow metal than they bought. After the recent financial crisis, the situation has changed dramatically. In 2011, net purchases of gold by central banks around the world amounted to 457 tons. This is more than 10% of the total demand in the global precious metal market (4400 t). And during the years preceding the 15 crisis, their net sales averaged 400 tons per year. Thus, the Central Bank made a sharp turn and began to buy gold in such volumes that were not observed from the 60-s of the XX century. 2011 was a record year for net gold purchases by central banks of the world since 1964. According to preliminary data from the World Gold Council, in 2012, a new record was set: net purchases of the yellow metal by the central banks of the world rose to 536 tons.
As for commercial banks, prior to the introduction of the Basel III standard, they regarded the yellow metal only as a tool to increase their profits through speculation and / or investment, but they did not have an incentive to create significant own reserves of the precious metal. I think that since 2013, their attitude to gold will change, they will acquire it personally for themselves in order to improve business sustainability and attract customers.
The legalization of the Basel III standard in several countries in 2013 is a serious sign of the return of gold to the world of money. Speech does not go about the classical gold standard at which banks freely exchange paper bank notes for metal. But the metal can be more widely used to cover the liabilities of banks and be a financial asset of the “higher instance”. Perhaps in the future, when banks accumulate a sufficient amount of gold, the question of restoring the gold standard will again be raised on the agenda ...