The Regulatory Battle to Make Gold a Bank Asset Just Hit a Major Turning Point

Key Concepts

• HQLA (High-Quality Liquid Assets): Assets that can be easily and immediately converted into cash at little or no loss of value in private markets to meet liquidity needs during a 30-day stress scenario.
• Basel III: A global regulatory framework that sets standards for bank capital adequacy, stress testing, and market liquidity risk.
• Liquidity Coverage Ratio (LCR): A requirement under Basel III that banks hold enough HQLA to survive a 30-day stressed net cash outflow.
• Amihud Liquidity Score: A metric used to measure market liquidity; it calculates the price impact of a trade (how much the price moves when a large position is sold). A lower score indicates higher liquidity.
• Allocated vs. Unallocated Gold: Allocated gold refers to physical gold held in a specific, identifiable account (often carrying a 0% risk weight), whereas unallocated/paper gold represents a claim on gold, which is penalized under current Basel III funding rules.

1. The Regulatory Status of Gold

For years, gold has been excluded from the official list of HQLA under the Basel III framework. The European Banking Authority (EBA) originally excluded gold in 2013, citing a lack of standardized, granular data to prove its liquidity.

On March 31, 2026, the London Bullion Market Association (LBMA) and the World Gold Council launched a dedicated data platform to challenge this exclusion. The goal is to provide the empirical evidence required by regulators to prove that gold functions as a high-quality liquid asset.

2. Data-Driven Evidence for Gold’s Liquidity

The new platform provides standardized data to demonstrate that gold meets the four pillars of HQLA:

• Market Depth: In 2025, gold’s average daily trading volume reached $361 billion, with the London OTC market contributing $161 billion daily.
• Amihud Liquidity Score: Gold achieved a score of 0.102. For comparison, 3–5 year US Treasuries score 0.055, and 10–20 year US Treasuries score 1.321. This places gold firmly within the liquidity range of sovereign debt.
• Crisis Performance: During the recent Iran-related geopolitical shock, gold was sold off by institutions. While some investors viewed this as a failure of gold as a "safe haven," the LBMA argues it was actually proof of its HQLA status: gold was sold because it was liquid, allowing institutions to "sell the winners to pay for the losers" during a deleveraging event.

3. The "Data Gap" vs. Institutional Will

The primary argument for gold's exclusion has historically been a "data gap." The LBMA’s new platform effectively closes this gap by providing standardized, transparent, and verifiable metrics.

However, the summary suggests that the barrier is no longer just technical, but structural. Gold is a non-sovereign asset with no counterparty risk. There is an inherent institutional tension in allowing a non-government asset to compete with government debt (like US Treasuries) within bank liquidity buffers. The transition to HQLA status is described by Ruth Crow (LBMA) as a "marathon, not a sprint," requiring political will alongside data.

4. Current Regulatory Treatment of Gold

It is a common misconception that gold is entirely ignored by Basel III. The current framework distinguishes between types of gold:

• Physical Allocated Gold: Currently carries a 0% risk weighting for Tier 1 capital purposes, treating it similarly to high-grade sovereign debt. It can also be used as collateral (subject to a haircut).
• Paper/Unallocated Gold: Under the Net Stable Funding Ratio (NSFR) rules, these derivatives-based exposures carry an 85% required stable funding factor, making them structurally expensive for banks to hold.

5. Conclusion and Takeaways

The launch of the LBMA/World Gold Council platform marks a shift from a defensive posture to an active, data-driven regulatory campaign. While gold does not currently hold the official HQLA label, the burden of proof has shifted to the regulators.

Main Takeaways:

• Gold’s liquidity metrics are comparable to US Treasuries, satisfying the technical requirements for HQLA.
• The "sell-off" of gold during crises is evidence of its high liquidity, not a lack of value.
• The regulatory framework already favors physical, allocated gold over paper derivatives.
• The debate has moved beyond "lack of data" to a question of whether the global financial system is willing to grant non-sovereign assets a formal role in liquidity buffers.