Bank of International Settlements (BIS)

The Bank of International Settlements (BIS) is an international organization supporting cooperation among central banks and other agencies. The Bank’s mission is to ensure international monetary and financial stability. The Bank of International Settlements functions as:

• a forum for international central bankers,
• a provider of financial services for central banks,
• a center for monetary and economic research,
• an agent or trustee for implementation of international financial agreements.

Recently the Bank of International Settlements coordinated antiterrorism financial monitoring.
One of the major activities of the Bank of International Settlements is operating the Financial Stability Institute (FSI). The FSI, created in 1998, provides seminars and information programs training central bank personnel from around the world. As demonstrated in the circular flow model of an economic system, monetary flows are needed to facilitate the flow of resources and goods and services. Monetary authorities must provide the needed amount of funds to facilitate exchanges, savings, and investment. Excessive or “tight” monetary policies impair economic performance. Financial stability is necessary for sustained economic growth. The FSI trains central bank personnel in areas concerning promotion of adequate capital standards, effective risk management, and transparency (openness) in financial markets. The best-known Bank of International Settlements agreement is the 1988 Basel Capital Accord. (The BIS is headquartered in Basel, Switzerland.) The accord strives for international convergence in the measurement of the adequacy of banks’ capital and to establish minimum capital standards.
The Bank of International Settlements was created in 1930 as part of the Young Plan from the Treaty of Versailles ending World War I. The Bank of International Settlements took over responsibility for reparations payments imposed on Germany and was directed to promote cooperation among central banks. Responsibility for war reparations ended with the financial chaos in Germany during the 1930s, focusing Bank of International Settlements efforts toward central bank cooperation. The Bank of International Settlements supported the Bretton Woods system, with a gold standard and the dollar as the international reserve currency until the early 1970s, and it managed capital flows during the oil crises in the 1970s. The organization also assisted with the international debt crisis in the 1980s and with financial management associated with globalization in the 1990s.
In addition to providing training and a forum for central bank officials’ discussion, the BIS provides banking services, such as reserve management and gold transactions for central banks and international organizations. At various times it has acted as the agent for exchange rate agreements among European countries. It also hosts G10 (Group of 10, previously G7) central bank governors meetings. The G10 leaders attempt to coordinate monetary polices to stabilize world economic conditions. The G10 includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, and the United States.
See also banking system.