Bank for International Settlements

Bank for International Settlements
See also
International Monetary Fund Federal reserve system Global bank Monetary union World Bank IGWT Development bank Washington consensus Country basket Chartered institute of bankers London club

The Bank for International Settlements - international, economic organisation which promotes monetary and financial cooperation and which is a bank for central banks. The BIS has assisted * and continues to assist * the pursuit of global monetary and financial stability in two main ways:

• by providing emergency financial assistance to central banks in case of need
• by supporting experts from national central banks and supervisory agencies in proposing measures and developing standards aimed at strengthening the international financial architecture, and in particular international banking supervision.

Bank for International Settlements was established on 17 May 1930 and is the oldest international financial institution. The BIS is located in Basel in Switzerland. It has two representative offices: in Hong Kong (opened in 1998) and in Mexico City (opened in 2002). The BIS does not accept deposits from, and does not provide financial services to, individuals or corporations. Bank for International Settlements is operating as:

• a forum for discussion for central banks and international organisations
• monetary and economic research centre
• participant in transactions with central banks
• trustee in international financial operations

Organisation

BIS headquarters in Basel, Switzerland

In the Bank for International Settlements there are three main departments: Monetary and Economic Department, Banking Department and General Secretariat. The decision-making bodies are:

• the General Meeting of 56 member central banks
• the Board of Directions - 19 members (I 2010)
• the Management of the Bank - the General Manager is Jaime Caruana

Member central banks

Algeria, Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Macedonia, Malaysia, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom and the United States, and the European Central Bank.

Establishment

The Bank for International Settlements was established in 1930 to administer (settle) the reparation payments which Germany had to pay under the Treaty of Versailles, because of what they aggressor's role during the First World War (The Young Plan). Founding countries the BIS were: Belgium, France, Germany, Italy, Japan, the United Kingdom and the United States. The BIS was also created to be a trustee for the Dawes and Young Loans (international loans created to finance reparations) and to promote central bank cooperation. Amid the financial and economic crisis of the early 1930s, the matter of reparations soon faded, allowing the BIS to focus its activities entirely on cooperation among central banks.

Towards European Monetary Union

For more than 30 years the BIS was closely associated with the process of European monetary integration, providing a platform for discussions among European central bankers and contributing to the technical infrastructure for European exchange rate arrangements. A European Monetary Cooperation Fund was set up in 1973 to support the operation of the "currency snake" mechanism. In 1988/89 some of European Economic Community members served on the Delors Committee, which issued a report in 1989 setting out a model for an independent central bank committed to price stability. Their recommendations decisively influenced the framework for European economic and monetary union set out in the Maastricht Treaty of 1992. The European Monetary Institute, precursor of the European Central Bank, was located at the BIS until its move to Frankfurt in 1994 (3).

Monetary and financial stability

"Monetary and financial stability" is one of the goals of central banks cooperation in BIS. Governors and senior officials from member central banks meet bimonthly in BIS to discuss these matters. In the BIS there are also committees which prepare policy recommendations and analysis:

• the Basel Committee on Banking Supervision,
• the Committee on the Global Financial System,
• the Committee on Payment and Settlement Systems,
• the Markets Committee,
• the Irving Fisher Committee on Central Bank Statistics.

Basel II

The Basel Committee on Banking Supervision formulated rules for banks operating and banking supervisory. These rules and principles - Basel II Framework (Basel I, the first framework, was issued in 1988 as Capital Accord, then was also an Amendment in 1996 - about "market risk") describes a measure and minimum standard for capital adequacy for banks (that national banking supervisory authorities are now working to implement). It seeks to improve on the existing rules by aligning regulatory capital requirements more closely to the underlying risks that banks face. In addition, the Basel II Framework is intended to promote a more forward-looking approach to capital supervision, one that encourages banks to identify the risks they may face, today and in the future, and to develop or improve their ability to manage those risks. There are three pillars in Basel II Framework:

• The First Pillar * Minimum Capital Requirements
• The Second Pillar * Supervisory Review Process
• The Third Pillar * Market Discipline

Basel II Framework was issued in 2004, revised in 2005, then revised framework was published in 2006, titled: "Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework - Comprehensive Version".

Publications

BIS also carries out research in the field of financial matters: monetary and financial stability, monetary policy and exchange rates, financial institutions and infrastructure, financial markets, central bank governance and legal issues. It's periodically publications are: the Quarterly Review, BIS Papers and Working Papers.

Examples of Bank for International Settlements

1. Acting as a forum for central bank cooperation: The BIS provides a forum for central banks to come together to discuss policy issues and exchange views. The Bank has hosted numerous important meetings, including the Basel Committee on Banking Supervision and the Financial Stability Board.
2. Acting as a focal point for international economic research: The BIS supports international economic research by providing a platform for the exchange of economic data and best practices. The Bank also publishes its own research reports, which are widely read by central banks and other financial institutions.
3. Providing liquidity to the international financial system: The BIS acts as a lender of last resort by providing liquidity to central banks and other financial institutions during times of financial distress.
4. Supporting central bank operations: The BIS provides services to central banks, including the operation of international payments and settlement systems, the issuance of banknotes, and the design and implementation of monetary policy.
5. Acting as a repository of international reserves: The BIS acts as a repository of international reserves, providing a safe and secure store of value for central banks. The BIS also assists in the management of reserves, providing advice and services to central banks.

Advantages of Bank for International Settlements

The Bank for International Settlements (BIS) is an international economic organisation which promotes monetary and financial cooperation and acts as a bank for central banks. The BIS has been instrumental in the pursuit of global monetary and financial stability, offering the following advantages:

• The BIS provides a platform for central banks to meet and discuss policy initiatives that aim to maintain financial stability.
• The BIS provides a forum in which central banks can share their experiences and strategies, and learn from each other.
• The BIS also acts as an intermediary between central banks and the global financial system, helping to ensure that the global financial system is operating smoothly.
• The BIS also helps in the implementation of international agreements, such as the Basel Accords, which set international standards for banking regulation and risk management.
• The BIS also provides technical assistance to central banks in the form of research and analysis, as well as providing advice on best practices.
• Finally, the BIS assists central banks in the monitoring of global financial markets and acting as a clearing house for transactions.

Limitations of Bank for International Settlements

The Bank for International Settlements is an international, economic organisation which promotes monetary and financial cooperation and which is a bank for central banks. Though the BIS has greatly assisted in the pursuit of global monetary and financial stability, it does have certain limitations. These limitations include:

• Its membership is limited to central banks, meaning that private and commercial banks, as well as supranational financial institutions, cannot join.
• Its governing structure is dominated by the European countries, with a majority of the members of the Board of Directors coming from within Europe and no representation from other parts of the world.
• It has limited power to enforce its decisions, as its decisions are non-binding.
• It lacks flexibility in its decision-making, as its decisions are based on consensus among its members and can be stalled or blocked.
• Its decisions are not always transparent, as the Bank does not release the full details of its decisions.
• It does not have the power to directly issue regulations, as it does not have regulatory authority.

Other approaches related to Bank for International Settlements

The Bank for International Settlements (BIS) is an international economic organisation that promotes monetary and financial cooperation, acting as a bank for central banks. The BIS assists in the pursuit of global monetary and financial stability in two main ways:

• Facilitating international coordination of financial regulation and supervision: The BIS works to facilitate international coordination of financial regulation and supervision through the Basel Committee on Banking Supervision, the Financial Stability Board, and other international bodies.
• Providing a platform for central banks to discuss and exchange views on policy issues: The BIS acts as a platform for central banks to discuss and exchange views on policy issues through working groups, seminars and conferences.

In addition to these two main approaches, the BIS also provides technical advice and assistance to central banks, operates a securities settlement system, and publishes a range of research on banking and monetary policy. In summary, the BIS provides a platform for international monetary and financial cooperation, and facilitates the exchange of ideas and information between central banks.

References

• Shelagh Heffernan, Modern Banking, John Wiley & Sons, London 2005
• Gianni Toniolo, Piet Clement, Central Bank Cooperation at the Bank for International Settlements, 1930-1973, Cambridge University Press, Cambridge-New York, 2005
• Bank for International Settlements website

Author: Katarzyna Florek