Skip to content

The Bank for International Settlements (BIS)

 

 

Our most recent News Roundup for June featured a story on the Bank for International Settlements (BIS) which is an international financial institution owned by central banks.  The news involved the BIS issuing a warning that the global economy risks falling into a debt trap in developed markets, particularly in China.  BIS advised that all nations should follow a “narrow path” to avert disaster during the next slowdown because the “easy monetary policy” since the last financial crisis has resulted in an increase in both private and public sector balance sheets.  Today we’re going to take a more detailed look at BIS so that are readers are fully informed on one of the most important financial institutions on the planet.

BIS was founded in 1930 by an intergovernmental agreement between Germany, France, Belgium, the United Kingdom, Italy, Japan, the United States and Switzerland and was originally intended to facilitate the reparations imposed on Germany by the Treaty of Versailles following World War One.  The organisation was also intended to serve as the trustee for the German Government International Loan (Young Loan) that was floated in 1930.  The BIS’s original task soon became obsolete when reparation payments were suspended in June, 1931 and then abolished in July, 1932. 

BIS then turned its attention to its secondary task which was fostering the cooperation between its member central banks, acting as a meeting forum and providing them with banking facilities.  BIS played an important role in helping continental European central banks to ship their gold to London and New York.  However, this period also saw BIS transferring 23 tons of gold held by the BIS in London on behalf of the Czechoslovakian national bank to the German Reichsbank after Nazi Germany invaded Czechoslovakia in March of 1939.

When World War 2 began in September, 1939, the BIS Board of Directors decided to keep the Bank open for business, maintaining a neutral stance whilst doing so.  BIS was viewed with increasing suspicion and was threatened with dissolution at the end of the war, a decision that was reversed in 1948 by the British government and US president, Harry Truman.

There followed a period during which BIS collaborated with the Committee of Governors of the Central Banks of the Member States of the European Community in improving monetary cooperation among EC central banks and went on to globalise operations in the 1990s.  While BIS was originally owned by both central banks and private individuals (with shares trading on the stock markets) it is now wholly owned by BIS members, the central banks.

The stated mission of BIS is to serve central banks in their pursuit of financial and monetary stability, to foster international cooperation in those areas and to act as a bank for central banks.  BIS hosts the Secretariat of the Basel Committee on Banking Supervision and was instrumental in establishing the Basel Capital Accords of 1988, Basel II framework in 2004 and the more recent Basel III framework.