Bank for International Settlements (BIS)

What Is the Bank for International Settlements (BIS)?

The Bank for International Settlements (BIS) is an international financial institution offering banking services for national central banks and a forum for discussing monetary and regulatory policies. The BIS, which is owned by 63 national central banks, also provides independent economic analysis.

Key Takeaways

  • BIS serves as a forum for monetary policy discussions and facilitates financial transactions for central banks.
  • It is governed by a board elected by the 63 central banks with ownership stakes, with permanent seats reserved for the U.S., U.K., Germany, France, Italy, and Belgium.
  • BIS shares offices with, and provides a secretariat for, independently governed international committees and associations focused on economic co-operation.
  • BIS is the rare international financial organization with for-profit operations.

Understanding the Bank for International Settlements

Headquartered in Basel, Switzerland, the Bank for International Settlements is often called the "central bank for central banks" because it provides banking services to institutions such as the European Central Bank and the Federal Reserve. These services include accounts for interest-bearing deposits and securities, gold and currency transactions, asset management services, and the provision of short-term collateralized loans.

The bank does not handle transactions for, or provide loans to, governments. It also does not do business with corporations or consumers.

The BIS also encourages cooperation among central banks. The Basel Committee for Banking Supervision (BCBS) is a closely associated international forum for financial regulation. It is one of several independently governed international committees and associations based at BIS headquarters and supported by its secretariat.

The BCBS is responsible for the Basel Accords, which recommend capital requirements and other banking regulations widely adopted by national governments.

BIS Governance and Finances

The BIS is governed by a board of 18 directors elected by its member central banks, The central bank governors of the U.S., the U.K., Germany, France, Italy, and Belgium are permanent directors, and may jointly appoint another director from one of those central banks. The remaining 11 directors are elected by the entire membership from among governors of the other member central banks.

The board oversees a general manager responsible for BIS operations. The bank had 634 employees from 64 countries as of March 2021.

The BIS had assets of 356.2 billion in International Monetary Fund Special Drawing Rights (SDRs), an international currency used to settle accounts between countries as of March 2021. That was equivalent to $493.7 billion at the prevailing exchange rate on March 10, 2022. The BIS made a profit of about SDR 1.24 billion for the year ended March 2021, mostly from the margin between its lending and deposit rates.

History of the BIS

The BIS was founded in 1930 as a clearinghouse for German war reparations imposed by the Treaty of Versailles. The original members were Germany, Belgium, France, Britain, Italy, Japan, the U.S., and Switzerland. Reparations were discontinued shortly after the bank's founding, and the BIS became a forum for cooperation and a counterparty for transactions among central banks.

The bank was officially neutral during World War II, but was widely seen as abetting the Nazi war effort, beginning with its transfer of Czechoslovakian national bank gold to Germany's Reichsbank in early 1939. At the end of the war, the Allies agreed to shut the BIS down but did not go through with the plan, partly at John Maynard Keynes' urging.

While the Bretton Woods agreement remained in effect, the BIS played a crucial role in maintaining international currency convertibility. It also acted as the agent for the 18-country European Payments Union, a settlement system that helped restore convertibility among European currencies from 1950 to 1958.

When the world transitioned to floating exchange rates in the 1970s, the BIS and BCBS focused on financial stability, developing capital requirements for banks based on the riskiness of their financial positions.

The resulting Basel Accords have been adopted widely by national governments to regulate their banking systems. Negotiations on Basel III, an update to previous accords that came as a response to the financial crisis, were completed in December 2017.

In March 2022 the BIS said it suspended dealings with Russia's central bank in compliance with international sanctions following Russia's invasion of Ukraine.

Article Sources
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  2. BIS. "Products and Services."

  3. BIS. "Banking Services for Central Banks."

  4. BIS. "About Committees and Associations."

  5. BIS. "The Basel Committee - Overview."

  6. BIS. "Board of Directors."

  7. BIS. "Annual Report 2020/21," Page 104.

  8. BIS. "Annual Report 2020/21," Page 131.

  9. International Monetary Fund. "SDR Valuation."

  10. BIS. "Annual Report 2020/21," Page 132.

  11. BIS. "History - Foundation and Crisis (1930-39)."

  12. Harvard University, Edmond J. Safra Center for Ethics. "The Tower of Institutional Corruption: The Bank for International Settlements in the Nightmare Years."

  13. Princeton University. "The Bretton Woods Debate, a Memoir," Page 42.

  14. BIS. "History - the BIS as a Forum for European Monetary Cooperation (1947-93)."

  15. BIS. "Basel III: International Regulatory Framework for Banks."

  16. AFP. "Bank for International Settlements suspends Bank of Russia."

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