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Psychological barriers in gold prices? Review of Financial Economics, 16(2007), 217–230.Īkaike, H. Thus, gold has a reserved relevance in the financial market for analysing portfolios and managing risks, especially when there is a period of financial distress as it is empowered with the role of hedge or safe-haven and diversification to minimize the risks, which recommended its inclusion in HQLA stock. This paper provides empirical evidence employing GARCH family models to show that Gold has similar symmetric volatility structure as other traditional assets, namely stocks indices, bonds and dollar index in the United State financial market, but, its price volatility is not affected by asymmetric market information (absence of leverage effect) compared with these assets. Gold, on the other hand, to date has not been included as HQLA stock due to high volatility. Hence, in December 2010, the Basel Committee of Banking Supervision (BCBS) announced a pair of novel ratios, the “Liquidity Coverage Ratio” (LCR) and the “Net Stable Funding Ratio” (NSFR) to make sure banks would be adequately supported with “High Quality Liquid Assets” (HQLA) when faced with financial pressure. For the purpose of LCR, banks shall continue to value such government securities reckoned as HQLA at an amount not greater than their current market value (irrespective of the category under which the security is held-that is, Held to Maturity/HTM, Available for Sale/AFS, or Held for Trading/HFT). The RBI Circular also specifies the incremental transitional requirements for the use of additional 2% of government securities as Level 1 HQLA between Apand April 01, 2020.The 2008–2009 Global Financial Crisis (GFC 2008/9) was a reminder that the majority of commercial banks then lacked adequate liquid assets to survive liquidity risk linked to times of financial pleasure. It has been decided to permit banks to reckon an additional 2.0% government securities held by them under FALLCR within the mandatory SLR requirement as Level 1 HQLA for the purpose of computing LCR, in a phased manner. Within the mandatory SLR requirement, Level 1 HQLA also includes government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) and under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). At present, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR of banks include government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement.
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