Bank for International Settlements (BIS)

What Is the Bank for International Settlements (BIS)?

The Bank for International Settlements (BIS) is an international financial institution that aims to promote global monetary and financial stability through the coordination of global central banks and their monetary policy efforts.

Understanding the Bank for International Settlements

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 Federal Reserve. These services include conducting gold and currency transactions, as well as making short-term collateralized loans.

The BIS also encourages cooperation among central banks. The Basel Committee for Banking Supervision (BCBS), while technically separate from the BIS, is a closely associated international forum for financial regulation that is housed in the BIS' offices in Basel, Switzerland. The BCBS is responsible for the Basel Accords, which recommend capital requirements and other banking regulations that are widely implemented by national governments. The BIS also conducts research into economic issues and publishes reports.

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 it 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 the decision was not implemented, 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.