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 to 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 points to remember

  • The BIS serves as a forum for monetary policy discussions and facilitates financial transactions for central banks.
  • It is governed by a board of directors elected by the 63 central banks with stakes, with permanent seats reserved for the United States, the United Kingdom, Germany, France, Italy and the Belgium.
  • BIS shares office space and provides secretariat services to independently governed international committees and associations focused on economic cooperation.
  • The BRI is the rare international financial organization to have for-profit operations.

Understanding the Bank for International Settlements

Based in Basel, Switzerland, the Bank for International Settlements is often referred to as the “central bank of central banks” because it provides banking services to institutions such as the European Central Bank and the Federal Reserve. These services include deposit and interest-bearing securities accounts, gold and foreign exchange transactions, asset management services and the provision of short-term loans. guaranteed loans.

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

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

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

BIS Governance and Finance

The BIS is governed by a board of 18 directors elected by its member central banks. The governors of the central banks of the United States, United Kingdom, Germany, France, Italy and Belgium are permanent directors and can jointly appoint another director from one of them. central banks. The remaining 11 directors are elected by the general membership from among the governors of the other member central banks.

The Board oversees a Managing Director 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 the International Monetary Fund Special Drawing Rights (SDR)an international currency used to settle accounts between countries from March 2022. This was equivalent to $458 billion at the exchange rate prevailing on August 9, 2022. BRI earned a profit of approximately SDR$341 million for the fiscal year ending March 2022, primarily from the margin between its clients’ deposits and the assets of third parties.

History of the BIS

The BRI was founded in 1930 as a clearinghouse for German war reparations imposed by the Treaty of Versailles. The original members were Germany, Belgium, France, Great Britain, Italy, Japan, the United States and Switzerland. Reparations were halted shortly after the bank’s establishment, and the BIS became a forum for cooperation and a counterparty for transactions between central banks.

The bank was officially neutral during World War II, but was widely seen as complicit in the Nazi war effort, beginning with the transfer of gold from the Czechoslovak National Bank to the German Reichsbank in early 1939. At the end of the war, the Allies agreed to shut down the BRI but did not follow through on the plan, partly because of John Maynard Keynes’ pressing.

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

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

The resulting Basel Accords have been widely adopted by national governments to regulate their banking systems. Negotiations on Basel IIIan update of previous agreements in response to the financial crisis, were completed in December 2017.

In March 2022, the BIS said it had suspended relations with the Russian central bank in accordance with international sanctions following the Russian invasion of Ukraine.

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