>>> Basel III is a 2009 international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand.
Basel III rules move physical gold from being considered a Tier-3 asset to being considered Tier-1, which allows physical gold in bullion form to be counted at 100% value for reserve purposes. ... Beginning in June of 2021, Basel III rules will require banks to hold unencumbered physical gold valued at 100%
Pillars of Basel III accord
Pillar-1 – Enhanced Minimum Capital & Liquidity Requirements.
Pillar-2 – Enhanced Supervisory Review Process for Firm-wide Risk Management and Capital Planning.
Pillar-3 – Enhanced Risk Disclosure and Market Discipline.
The implementation date of the Basel III standards finalised in December 2017 has been deferred by one year to 1 January 2023. The accompanying transitional arrangements for the output floor have also been extended by one year to 1 January 2028.
Gold was previously viewed as a risky asset. It was classified as a Tier 3 asset, which meant that gold could only be carried on banks' balance sheet at 50% of the market value for reserve purposes. ... On the 1st of April 2019, Gold was reclassified as a Tier 1 asset and its risk-weighting was reduced to zero.
Tier 3 capital is tertiary capital, which many banks hold to support their market risk, commodities risk, and foreign currency risk, derived from trading activities. Tier 3 capital includes a greater variety of debt than tier 1 and tier 2 capital but is of a much lower quality than either of the two.
Under Basel III, the minimum capital adequacy ratio that banks must maintain is 8%. ... With higher capitalization, banks can better withstand episodes of financial stress in the economy.
The key difference between the Basel II and Basel III are that in comparison to Basel II framework, the Basel III framework prescribes more of common equity, creation of capital buffer, introduction of Leverage Ratio, Introduction of Liquidity coverage Ratio(LCR) and Net Stable Funding Ratio (NSFR).
