Fool's gold

1 March 2011 By George Hay Follow @gfhay

Lenders are hoping to boost capital by revaluing their stakes in the goldrich central bank. But even if Bank of Italy boss Mario Draghi allowed such an obvious fudge, it would run afoul of new Basel rules. The ploy only draws attention to banks’ pressing need for fresh equity.

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Italian bankers are lobbying the Bank of Italy to allow their stakes in the central bank to be marked to market to reflect surging gold prices, the Financial Times reported on March 1.

At the end of 2009, the Bank of Italy had gold reserves of 2,452 tonnes, valued on its books at 60.4 billion euros.

At the market price of $1,420 per ounce on March 1, the reserves had a value of about 80.7 billion euros.

At the end of 2009, the Bank of Italy's capital and reserves stood at 20.1 billion euros.

On Feb. 26, Mario Draghi, the Bank of Italy's governor, said Italian banks should be prepared to strengthen their capital. This would be mainly achieved through retained earnings. However, he added that "recourse to the capital market would also appear unavoidable as soon as conditions permit".

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