November 10, 2021

NSFR Member's Update

Sakhila Mirza, General Counsel & Executive Board Director, LBMA; David Gornall, Senior Advisor, LBMA; Raj Kumar, Managing Director, ICBC Standard Bank Plc.; Mehdi Barkhordar, Chairman of the Board of Directors, MMTC-PAMP India.

Today LBMA welcomed back its webinar series with a session on Net Stable Funding Ratio (NSFR), covering the developments since the Bank of England's Prudential Regulatory Authority (PRA) announcement in July.

“Simply put, NSFR is the amount of stable funding held in relation to the required amount of stable funding,” began David Gornall (Senior Advisor, LBMA).

Sakhila Mirza (General Counsel & Executive Board Director, LBMA) explained how LBMA has taken great strides in furthering education on NSFR by talking to regulators about the impact of NSFR on both financial institutions and the downstream. “Meanwhile,” she said, “the publication of trade data since 2015 has strengthened the argument that gold is a high-quality liquid asset (HQLA).

“We still need regulators to recognise the transactional impact, as gold loans and leases are exactly the same transactionally as those denominated in US dollars, for example,” continued Sakhila. “We have a lot of compelling data, and we want to help the regulators understand that the 85% Required Stable Funding factor does not make sense in this market.”

Mehdi Barkhordar (Chairman of the Board of Directors, MMTC-PAMP India) said: “For the real economy, the most critical element is access to liquidity and metal lease lines at a reasonable cost. NSFR could be a huge problem because if certain banks decide its not worth the hassle, the number of participants will reduce, so whoever remains in the market will face higher operational costs which will pass on to the industry.”

“The discrepancy between the banks’ stable funding ratio and the corporates’ ratio is also a real concern,” added Raj Kumar (Managing Director, ICBC Standard Bank Plc). “The key for us is to either lobby the PRA to reduce the ratios down to a more realistic level or to have gold recognised as a HQLA – which is achievable but perhaps more of a long-term goal.”