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 629 employees from 63 countries as of March 2022.

The BIS had assets of $347.6 billion in International Monetary Fund Special Drawing Rights (SDRs), an international currency used to settle accounts between countries as of March 2022. That was equivalent to $458 billion at the prevailing exchange rate on Aug. 9, 2022. The BIS made a profit of about SDR $341 million for the year ended March 2022, mostly from the margin between its customer deposits and third-party assets.

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.

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