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On June 6, 2025, the Swiss Federal Council submitted a legislative initiative for consultation that proposes stricter capital requirements for UBS’s foreign subsidiaries. If enacted, the measure could compel UBS to raise an additional CHF 25 billion, reigniting debate over Basel III regulations.

Developed in response to the 2008 financial crisis and set to be fully implemented in 2025, Basel III establishes new standards for banks’ financial resilience – particularly through its definition of High-Quality Liquid Assets (HQLA), which are intended to meet liquidity demands in times of stress.

«Gold is among the most liquid and actively traded assets in the world.»

While gold meets nearly every technical criterion for classification as HQLA, it is still formally excluded from this category. This disconnect is increasingly questioned, as it appears misaligned with actual market practice.

Gold is one of the most liquid and widely traded assets globally, with a daily trading volume exceeding USD 200 billion. It carries no credit or issuer risk and is broadly accepted as collateral in financing and derivatives markets.

From a balance sheet perspective, gold is already treated favorably. Under both the standardized and advanced approaches, it is classified as a risk-free asset that does not require additional capital backing.

«A regulatory shift would represent a strategic opportunity for Switzerland.»

Nevertheless, gold is excluded from Common Equity Tier 1 (CET1) capital – the core of regulatory capital composed strictly of common equity and retained earnings. While this exclusion reflects CET1’s definition, it further reinforces gold’s marginalization within the Basel III regime.

Revising this regulatory stance would represent a strategic opportunity for Switzerland – a global hub for gold refining, trading, and storage. Official recognition of gold as HQLA would offer banks a powerful tool to diversify and strengthen their liquidity management, which currently relies heavily on government bonds and central bank reserves.

This shift comes at a time of broader structural change in the physical gold market. Institutional investors are showing increased interest in tangible, counterparty-free assets – in contrast to paper-based gold instruments.

«An update to the Basel III rules would provide a competitive advantage for Swiss finance.»

Central banks – notably China – are actively diversifying their foreign currency reserves, collectively acquiring 244 metric tons of gold in Q1 2025. This push to reduce dollar dependence coincides with steady accumulation by large investors seeking stability.

Recognizing gold as HQLA would likely trigger additional structural demand from the banking sector, supporting the gold price over the long term. If gold were to comprise just 5–10% of HQLA portfolios, an incremental price increase of USD 200–300 per ounce could be realistic.

In an environment of persistent global uncertainty and heightened investor demand for safety, gold’s continued exclusion from the HQLA framework appears increasingly outdated. For Switzerland, a recalibration of Basel III rules would not only bring greater coherence but also deliver a tangible competitive advantage on the international stage.

Arthur Jurus is Head of Investment Office at ODDO BHF (Switzerland) Ltd.

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