17 November 2021
The European Banking Authority (EBA) published today a Report on the possible impact of the net stable funding ratio (NSFR) on the functioning of the precious metals’ markets. The Report aims at assessing whether it would be justified to reduce the required stable funding factor for assets used for providing clearing and settlement services or for financing transactions of precious metals.
This Report discusses the impact of the introduction of the NSFR on the market of the precious metals and analyses the impact of possible modifications of the prudential treatment of physically traded commodities under the NSFR.
Leveraging on the information collected by the Basel Committee on Banking Supervision (BCBS) and the EBA under the Quantitative Impact Studies (QIS) project, this Report shows that banks started to comply with the new liquidity requirements well in advance of their entry into force (June 2021, for the NSFR). During the period 2011–2019, banks analysed in the BCBS QIS cleared the shortfall of stable funding needed to comply with the NSFR. In the same period, based on the information publicly available from the website of the London Bullion Market Association, there is no evidence that this adjustment had an impact on the precious metals’ market.
Based on the EBA QIS and COREP data, the amount of physically traded commodities reported by the banks was found to be negligible when compared with the market volumes. Also, the requirement for stable funding generated by these assets is limited in comparison with the total amount of required stable funding and a reduction of the weighting factor assigned to these assets would have limited impact on the banks and, in particular, it would not make the NSFR less stringent.
The Report has been developed in compliance Regulation (EU) No 2019/876 (CRR2) that amended Article 510 of Regulation (EU) No 575/2013 (CRR) by adding the paragraph (11) that mandates the EBA to submit a report to the Commission assessing the impact of the NSFR on the precious metals’ market.