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    EBA Assesses Impact of NSFR on Functioning of Precious Metal Markets

    November 17, 2021

    The European Banking Authority (EBA) published a report on the possible impact of the net stable funding ratio (NSFR) on the functioning of the markets for precious metals. The revised Capital Requirements Regulation (CRR2) mandates EBA to submit a report to the European Commission assessing whether it would be justified to reduce the required stable funding factor for assets used for providing clearing and settlement services or for providing financing transactions of precious metals. The report discusses the impact of the introduction of NSFR on the market of the precious metals and analyzes the impact of possible modifications of the prudential treatment of physically traded commodities under the NSFR.

    Leveraging the information collected by the Basel Committee on Banking Supervision (BCBS) and EBA under the Quantitative Impact Studies (QIS) project, the 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 2011–2019, a sample of about 200 banks reduced the shortfall of stable funding from USD 2.8 trillion to zero and, at the end of 2019, the average weighted NSFR was well above the minimum of 100%. In the same period, there is no evidence of negative effects due to the expected potential reduction of liquidity in the markets for precious metals. 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;  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. In conclusion, there is no evidence that the efforts made by the banking system since the announcement of the new prudential standard in 2010 to comply with newly introduced liquidity requirements have had a material impact on the markets for precious metals.

     

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    Keywords: Europe, EU, Banking, CRR2, Basel, NSFR, COREP, QIS, Liquidity Risk, BCBS, EBA

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