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The gold industry could be in for a wake-up call, and further liquidity squeeze, when potential new net stable fund requirements are passed at the start of 2018, sources close to the situation have been telling S&P Global Platts. Although the potential rejig of legislation — being pushed by the European Commission — relating to how funding requirements of the gold leasing model is more than a year away, that isn’t stopping high level industry participants from lobbying against what could end up damaging the entire business from mine supply to end users, Platts has learned. New funding requirements, that in essence will add financial burden to the way banks structure gold leasing, or loans as more commonly known, will without doubt see financial institutions forced to increase the interest charged to cover their own inflated cost of carry trade, according to sources. The ‘net stable funding ratio’ — or NSFR — of 85%, timetabled for launch January 2018, could make short-dated credit agreements impossible. According to bankers this will mean having to pass the costs onto its customers across the value chain, or exit entirely. “We’re certainly not in a position to absorb the addition,” said one senior banker. Bankers are working on ways to minimize exposure, with two bankers estimating a ballpark figure of $20-80 million being added to balance sheets annually. As the new ruling is not yet active, all of these equations are based on assumption leaning towards worst case scenarios. The bullion business is already under immense cost pressure, piled on by mounting regulation, and as such is mindful of the impact that further hikes could have — primarily on liquidity — something that is already rapidly evaporating, sources have told Platts, evident in more and more banks exiting the business. Partnerships Industry body the London Bullion Market Association is working alongside other representatives including the World Gold Council and London Platinum and Palladium Market to lobby various bureaucrats in order to starve off the intended increase of fund ratio needed to finance leasing. In simple terms bullion banks supply refined gold bullion to refiners in order for them to secure offload of dore (a semi-finished gold/silver alloy) to then in turn process into refined metal and pay back the original loan. One letter signed by a handful of industry organizations said the lease process is an integral part of the bul...