BANK FOR INTERNATIONAL SETTLEMENTS

The Bank for International Settlements (BIS) is an international financial

institution owned by central banks which "fosters international monetary and financial
cooperation and serves as a bank for central banks". The BIS carries out its work through
its meetings, programmes and through the Basel Process – hosting international groups
pursuing global financial stability and facilitating their interaction. It also provides banking
services, but only to central banks and other international organizations. It is based
in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

The BIS was established in 1930 by an intergovernmental agreement between Germany,

Belgium, France, the United Kingdom, Italy, Japan, the United States and Switzerland. It
opened its doors in Basel, Switzerland on 17 May 1930.
The BIS was originally intended to facilitate reparations imposed on Germany by the Treaty
of Versailles after World War I, and to act as the trustee for the German Government
International Loan (Young Loan) that was floated in 1930. The need to establish a
dedicated institution for this purpose was suggested in 1929 by the Young Committee, and
was agreed to in August of that year at a conference at The Hague. A charter for the bank
was drafted at the International Bankers Conference at Baden-Baden in November, and its
charter was adopted at a second Hague Conference on January 20, 1930. According to the
charter, shares in the bank could be held by individuals and non-governmental entities.
However, the rights of voting and representation at the Bank’s General Meeting were to be
exercised exclusively by the central banks of the countries in which the shares had been
initially subscribed. The BIS was constituted as having corporate existence in Switzerland
on the basis of an agreement with Switzerland acting as headquarters state for the bank. It
also enjoyed certain immunities in the contracting states (Brussels Protocol 1936).
The BIS’s original task of facilitating World War I reparation payments quickly became
obsolete. Reparation payments were first suspended (Hoover moratorium, June 1931) and
then abolished altogether (Lausanne Agreement, July 1932). Instead, the BIS focused on its
second statutory task, i.e. fostering the cooperation between its member central banks. It
acted as a meeting forum for central banks and provided banking facilities to them. For
instance, in the late 1930s, the BIS was instrumental in helping continental European
central banks shipping out part of their gold reserves to London and New York. At the same
time, the BIS fell under the spell of the appeasement illusion. The most notorious incident
in this context was the transfer of 23 tons of gold held by the BIS in London on behalf of the
Czechoslovakian national bank to the German Reichsbank after Nazi Germany had invaded
Czechoslovakia in March 1939.
At the outbreak of the Second World War in September 1939, the BIS Board of Directors –
on which the main European central banks were represented – decided that the Bank
should remain open, but that, for the duration of hostilities, no meetings of the Board of
Directors were to take place and that the Bank should maintain a neutral stance in the
conduct of its business. However, as the war dragged on evidence mounted that the BIS
conducted operations that were helpful to the Germans. Also, throughout the war, the BIS
accepted gold from the Reichsbank in payment for prewar obligations linked to the Young
Plan. This in spite of repeated Allied warnings not to accept gold or other assets
from Nazi Germany. It later transpired that much of this gold had been looted (and
subsequently remelted) by the Germans from the central banks in occupied territories.
Some of this remelted gold included gold rings and other items from labor and prison camp
victims. Operations conducted by the BIS were viewed with increasing suspicion from
London and Washington. The fact that top level German industrialists and advisors sat on
the BIS board seemed to provide ample evidence of how the BIS might be used by Hitler
throughout the war, with the help of American, British and French banks. Between 1933
and 1945 the BIS board of directors included Walther Funk, a prominent Nazi official,
and Emil Puhl, as well as Hermann Schmitz, the director of IG Farben and Baron von
Schroeder, the owner of the J.H. Stein Bank.
The 1944 Bretton Woods Conference recommended the "liquidation of the Bank for
International Settlements at the earliest possible moment". This resulted in the BIS being
the subject of a disagreement between the U.S. and British delegations. The liquidation of
the bank was supported by other European delegates, as well as the United States
(including Harry Dexter White and Henry Morgenthau, Secretary of the Treasury), but
opposed by John Maynard Keynes, head of the British delegation.
Fearing that the BIS would be dissolved, Keynes went to Morgenthau hoping to prevent the
dissolution, or have it postponed, but the next day the dissolution of the BIS was approved.
However, the liquidation of the bank was never actually undertaken.[11] In April 1945, the
new U.S. president Harry S. Truman and the British government suspended the dissolution,
and the decision to liquidate the BIS was officially reversed in 1948.
After the Second World War, the BIS retained an outspoken European focus. It acted as
Agent for the European Payments Union (EPU, 1950–58), an intra-European clearing
arrangement designed to help the European countries in restoring currency convertibility
and free, multilateral trade. During the 1960s – the heyday of the Bretton Woods fixed
exchange rate system – the BIS once again became the locus for transatlantic monetary
cooperation. It coordinated the central banks’ Gold Pool and a number of currency support
operations (e.g. Sterling Group Arrangements of 1966 and 1968). The Group of Ten (G10),
including the main European economies, Canada, Japan and the United States, became the
most prominent grouping.
With the end of the Bretton Woods system (1971–73) and the transition to floating
exchange rates, financial stability issues came to the fore. The collapse of internationally
active banks, such as Bankhaus Herstatt (1974), highlighted the need for improved banking
supervision at an international level. The G10 Governors created the Basel Committee for
Banking Supervision (BCBS), which remains active to this day. The BIS developed into a
global meeting place for regulators and for developing international standards (Basel
Concordat, Basel Capital Accord, Basel II and III). Through its member central banks, the
BIS was actively involved in the resolution of the Latin American debt crisis (1982).
From 1964 until 1993, the BIS provided the secretariat for the Committee of Governors of
the Central Banks of the Member States of the European Community (Committee of
Governors). This Committee had been created by European Council decision to improve
monetary cooperation among the EC central banks. Likewise, the BIS in 1988–89 hosted
most of the meetings of the Delors Committee (Committee for the Study of Economic and
Monetary Union), which produced a blueprint for monetary unification subsequently
adopted in the Maastricht Treaty (1992). In 1993, when the Committee of Governors was
replaced by the European Monetary Institute (EMI – the precursor of the ECB), it moved
location from Basel to Frankfurt, cutting its ties with the BIS.
In the 1990s–2000s, the BIS successfully globalised, breaking out of its traditional
European core. This was reflected in a gradual increase in its membership (from 33
shareholding central bank members in 1995 to 60 in 2013, which together represent
roughly 95% of global GDP), and also in the much more global composition of the BIS
Board of Directors. In 1998, the BIS opened a Representative Office for Asia and the Pacific
in the Hong Kong SAR. A BIS Representative Office for the Americas was established in
2002 in Mexico DF.
The BIS was originally owned by both central banks and private individuals, since the
United States, Belgium and France had decided to sell all or some of the shares allocated to
their central banks to private investors. BIS shares traded on stock markets, which made
the bank an unusual organization: an international organization (in the technical sense of
public international law), yet allowed for private shareholders. Many central banks had
similarly started as such private institutions; for example, the Bank of England was
privately owned until 1946. In more recent years the BIS has bought back its once publicly
traded shares. It is now wholly owned by BIS members (central banks) but still operates in
the private market as a counterparty, asset manager and lender for central banks and
international financial institutions. Profits from its transactions are used, among other
things, to fund the bank's other international activities.
Organization of central banks
As an organization of central banks, the BIS seeks to make monetary policy more
predictable and transparent among its 60-member central banks, except in the case of
Eurozone countries which forfeited the right to conduct monetary policy in order to
implement the euro. Failures to keep monetary policy in line with reality and
make monetary reforms in time, preferably as a simultaneous policy among all 60 member
banks and also involving the International Monetary Fund, have historically led to losses in
the billions as banks try to maintain a policy using open market methods that have proven
to be based on unrealistic assumptions.
Central banks do not unilaterally "set" rates, rather they set goals and intervene using their
massive financial resources and regulatory powers to achieve monetary targets they set.
One reason to coordinate policy closely is to ensure that this does not become too
expensive and that opportunities for private arbitrage exploiting shifts in policy or
difference in policy, are rare and quickly removed.
Two aspects of monetary policy have proven to be particularly sensitive, and the BIS
therefore has two specific goals: to regulate capital adequacy and make reserve
requirements transparent.
Regulates capital adequacy
Capital adequacy policy applies to equity and capital assets. These can be overvalued in
many circumstances because they do not always reflect current market conditions or
adequately assess the risk of every trading position. Accordingly, the Basel
standards require the capital/asset ratio of internationally active commercial banks to be
above a prescribed minimum international standard, to improve the resilience of the
banking sector.
The main role of the Basel Committee on Banking Supervision, hosted by the BIS, is setting
capital adequacy requirements. From an international point of view, ensuring capital
adequacy is key for central banks, as speculative lending based on inadequate underlying
capital and widely varying liability rules causes economic crises as "bad money drives out
good".
Encourages reserve transparency
Reserve policy is also important, especially to consumers and the domestic economy. To
ensure liquidity and limit liability to the larger economy, banks cannot create money in
specific industries or regions without limit. To make bank depositing and borrowing safer
for customers and reduce risk of bank runs, banks are required to set aside or "reserve".
Reserve policy is harder to standardize as it depends on local conditions and is often fine-
tuned to make industry-specific or region-specific changes, especially within
large developing nations. For instance, the People's Bank of China requires urban banks to
hold 7% reserves while letting rural banks continue to hold only 6%, and simultaneously
telling all banks that reserve requirements on certain overheated industries would rise
sharply or penalties would be laid if investments in them did not stop completely. The
PBoC is thus unusual in acting as a national bank, focused on the country not on the
currency, but its desire to control asset inflation is increasingly shared among BIS members
who fear "bubbles", and among exporting countries that find it difficult to manage the
diverse requirements of the domestic economy, especially rural agriculture, and an export
economy, especially in manufactured goods.
Effectively, the PBoC sets different reserve levels for domestic and export styles of
development. Historically, the United States also did this, by dividing federal monetary
management into nine regions, in which the less-developed western United States had
looser policies.
For various reasons it has become quite difficult to accurately assess reserves on more than
simple loan instruments, and this plus the regional differences has tended to discourage
standardizing any reserve rules at the global BIS scale. Historically, the BIS did set some
standards which favoured lending money to private landowners (at about 5 to 1) and for-
profit corporations (at about 2 to 1) over loans to individuals. These distinctions
reflecting classical economics were superseded by policies relying on undifferentiated
market values – more in line with neoclassical economics.

Goal: monetary and financial stability

The stated mission of the BIS is to serve central banks in their pursuit of monetary and
financial stability, to foster international cooperation in those areas and to act as a bank for
central banks. The BIS pursues its mission by:

 fostering discussion and facilitating collaboration among central banks;

 supporting dialogue with other authorities that are responsible for promoting financial
stability;
 carrying out research and policy analysis on issues of relevance for monetary and
financial stability;
 acting as a prime counterparty for central banks in their financial transactions; and
 serving as an agent or trustee in connection with international financial operations.
The role that the BIS plays today goes beyond its historical role. The original goal of the BIS
was "to promote the co-operation of central banks and to provide additional facilities for
international financial operations; and to act as trustee or agent in regard to international
financial settlements entrusted to it under agreements with the parties concerned", as
stated in its Statutes of 1930.
Role in banking supervision
The BIS hosts the Secretariat of the Basel Committee on Banking Supervision and with it
has played a central role in establishing the Basel Capital Accords of 1988, Basel
II framework in 2004 and more recently Basel III framework. There remain significant
differences between United States, European Union, and United Nationsofficials regarding
the degree of capital adequacy and reserve controls that global banking now requires. Put
extremely simply, the United States, as of 2006, favoured strong strict central controls in
the spirit of the original 1988 accords, while the EU was more inclined to a distributed
system managed collectively with a committee able to approve some exceptions.
The UN agencies, especially ICLEI, are firmly committed to fundamental risk measures: the
so-called triple bottom line and were becoming critical of central banking as an
institutional structure for ignoring fundamental risks in favour of technical risk
management.

Red Books
One of the Group's first projects, a detailed review of payment system developments in the
G10 countries, was published by the BIS in 1985 in the first of a series that has become
known as "Red Books". Currently the red books cover countries participating in the
Committee on Payments and Market Infrastructures (CPMI). A sample of statistical data in
the red books appears in the table below, where local currency is converted to US dollars
using end-of-year rates.

Banknotes and coin in circulation (12/31/2015)

Per Capita Country Billions of Dollars

$9,213 Switzerland $76.31

$6,739 Japan $856.55

Banknotes and coin in circulation (12/31/2015)

Per Capita Country Billions of Dollars

$6,550 Hong Kong SAR $47.98

$4,911 Singapore $27.18

$4,433 United States $1,424.92

$3,571 Euro area $1,210.42

$2,320 Australia $55.28

$1,708 Saudi Arabia $52.99

$1,641 Canada $58.78

$1,583 United Kingdom $103.09

$1,460 Korea $73.92

$872 Sweden $8.59

$800 Russia $117.05

$599 Mexico $72.02

Banknotes and coin in circulation (12/31/2015)

Per Capita Country Billions of Dollars

$458 Turkey $36.06

$282 Brazil $57.75

$195 India $250.80

$113 South Africa $6.15

$1,558 Average/Total $4,535.84

The most notable currency not included in this table since 2009 is the Chinese yuan where
statistics are listed "not available". In the year 2009 China was listed as having a banknotes
and coins of value $606.59 billion and $456 per capita using an exchange rate of
6.8282 RMB per USD.
Sweden is a wealthy country without much cash per capita compared to other countries.
Sweden has been steadily eliminating most of its banknotes and coins over the past
decades. According to the Red Books, the last year Sweden had more cash on a per capita
basis than Korea was in 2013; United Kingdom and Saudi Arabia in 2012; Canada in 2008;
Australia in 2006; Euro Area in 2002; and US in 1992.

Committees & Associations

Basel Committee on Banking Supervision
The Basel Committee on Banking Supervision provides a forum for regular cooperation on
banking supervisory matters. Its objective is to enhance understanding of key supervisory
issues and improve the quality of banking supervision worldwide.
See more about the BCBS | BCBS charter | 2017/18 work programme.
 Basel III is a comprehensive set of reform measures, developed by the BCBS, to strengthen
the regulation, supervision and risk managment of the banking sector.
The implementation of the Basel standards is monitored.

Committee on the Global Financial System

The Committee on the Global Financial System (CGFS), which is chaired by William C
Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New
York, monitors developments in global financial markets for central bank Governors.
The Committee has a mandate to identify and assess potential sources of stress in global
financial markets, to further the understanding of the structural underpinnings of financial
markets, and to promote improvements to the functioning and stability of these markets. It
fulfils this mandate by way of regular monitoring discussions among CGFS members,
through coordinated longer-term efforts, including working groups involving central bank
staff, and through the various reports that the CGFS publishes. The CGFS also oversees the
collection of the BIS international banking and financial statistics.
The CGFS, formerly known as the Euro-currency Standing Committee, was established in
1971 with a mandate to monitor international banking markets. Its initial focus was on the
monetary policy implications of the rapid growth of off-shore deposit and lending markets,
but attention increasingly shifted to financial stability questions and to broader issues
related to structural change in the financial system. Reflecting this change in focus, the G10
Governors decided on 8 February 1999 to rename the Committee and to revise its mandate.
As of January 2010, the Chairman of the CGFS reports to the Global Economy Meeting,
which comprises a group of 31 central bank Governors as members.

Committee on Payments and Market Infrastrcture

The Committee on Payments and Market Infrastructures (CPMI) is an international
standard setter that promotes, monitors and makes recommendations about the safety and
efficiency of payment, clearing, settlement and related arrangements, thereby supporting
financial stability and the wider economy. It also serves as a forum for central bank
cooperation in related oversight, policy and operational matters, including the provision of
central bank services.

The CPMI's work

The CPMI carries out its mandate by:

 identifying risks for the safety and efficiency of payment, clearing and settlement systems and
resulting risks for the global financial system
 sharing experiences related to payment, clearing and settlement systems, the performance of
oversight functions and the provision of central bank services in order to promote common
understanding, and developing policy advice or common policies for central banks
 establishing and promoting global standards and recommendations for the regulation,
oversight and practices of payment, clearing and settlement systems
 monitoring the implementation of CPMI standards and recommendations
 supporting cooperative oversight and cross-border information-sharing, including crisis
communication and contingency planning for cross-border crisis management
 maintaining relationships with non-CPMI central banks to share experiences and promote the
implementation of CPMI standards and recommendations beyond member jurisdictions
 cooperating with other financial sector standard setters, central bank bodies and
international financial institutions

Irving Fisher Committee

The Irving Fisher Committee on Central Bank Statistics (IFC) is a forum of central bank
economists and statisticians, as well as others who want to participate in discussing
statistical issues of interest to central banks. The IFC is established and governed by the
international central banking community and operates under the auspices of the Bank for
International Settlements (BIS). It is associated with the International Statistical Institute
(ISI).
On 12 September 2016 the BIS All Governors' meeting approved the appointment
of Claudia Buch as Chair of the Irving Fisher Committee on Central Bank Statistics (IFC)
for a three-year term. Ms Claudia Buch has been Vice President of the Deutsche
Bundesbank since May 2014, being responsible for the Directorates General Financial
Stability, Audit and Statistics. Her CV is available at the Deutsche Bundesbank website.
The 9th biennial IFC Conference will take place at the BIS in Basel on 30-31 August
2018.

Financial Stability Institute

The Financial Stability Institute (FSI) was jointly created in 1998 by the Bank for
International Settlements (BIS) and the Basel Committee on Banking Supervision (BCBS) to
assist supervisors around the world in improving and strengthening their financial
systems.

Objectives of the FSI

The FSI's objectives are to:

 promote sound supervisory standards and practices globally and support full implementation
of these standards in all countries
 keep supervisors updated with the latest information on market products, practices and
techniques
 provide a venue for policy discussion and sharing of supervisory practices and experiences
 promote cross-sectoral and cross-border supervisory contacts and cooperation
 The FSI's main activities and products

The FSI achieves its objectives primarily through the following activities and products:

 FSI Insights on policy implementation, a series of papers on authorities' experience with

practical regulatory and supervisory issues across jurisdictions, Executive Summaries of
international regulatory standards and frameworks, and other publications, including Basel
implementation surveys and occasional papers
 Meetings with senior officials, conferences, seminars and webinars
 FSI Connect, the BIS's web-based learning tool and information resource for financial sector
supervisors
 Fellowship programme

Other BIS-hosted organisations

The BIS hosts the secretariats of a number of independent organisations without direct
reporting links to the BIS and its member central banks. These are the Financial Stability
Board (FSB), the International Association of Insurance Supervisors(IAIS) and
the International Association of Deposit Insurers (IADI).
The IAIS and IADI focus on the domains of insurance and deposit insurance, respectively,
while the FSB's mission is broader.

The FSB promotes international financial stability through enhanced information exchange
and international cooperation in financial supervision and surveillance. It brings together
on a regular basis national authorities responsible for financial stability in significant
international financial centres, international financial institutions, international regulatory
or supervisory bodies, and committees of central bank experts.

Markets Committee
The Markets Committee (formerly the Committee on Gold and Foreign Exchange) was
established in 1962 following the formation of the so-called Gold Pool. Subsequently,
members continued to meet and exchange views on market issues in an open and informal
manner. Over time, the Committee has widened its discussion of financial market
developments beyond gold and foreign exchange, and cooperated more closely in assessing
current events as well as longer-term structural trends that may have implications for
financial market functioning and central bank operations.

To facilitate its discussions and enhance market transparency, the Markets Committee
condensed the information on the monetary policy frameworks and market operations of
its members into an easily accessible document: Monetary policy frameworks and central
bank market operations, first published on 17 December 2007 and last updated in May
2009.
A Foreign Exchange Working Group (FXWG), operating under the auspices of the Markets
Committee, was established in 2015 to strengthen code of conduct standards and
principles in foreign exchange markets.