What’s it: The Bank for International Settlements (BIS) is an international organization functioning as a forum for cooperation between central banks to promote global monetary and financial stability. Founded in 1930 and headquartered in Basel, Switzerland, this institution also provides certain financial services to the central bank.
A brief history of the Bank for International Settlements
The Bank for International Settlements was founded in 1930 due to the Hague Conference and is the oldest international financial institution. The conference was attended by France, Germany, England, Italy, Switzerland, Belgium and Japan. Initially, its establishment aimed to settle payments imposed on Germany after World War I.
Before World War II, the Bank for International Settlements helped ship gold from Europe to New York and London on behalf of European Central Bank. After the war, the agency acted as a technical agent to create the European Payments Union. This organization helped restore currency conversion in Europe.
After the 1997-1998 Asian crisis, the Financial Stability Forum was formed in February 1999 and is headquartered at the Bank for International Settlements. The forum coordinates the work of national financial authorities and international standard-setting bodies. In 2009, this forum changed its name to the Financial Stability Board.
Now, the function of the Bank for International Settlements has come a long way. For example, through its committee, Basel Committee on Banking Supervision, BIS launched Basel III standards to strengthen bank regulation, supervision, and risk management.
Mission of the Bank for International Settlements
Its mission is “to serve central banks in their pursuit of monetary and financial stability, to promote international cooperation in these areas and to act as a bank for central banks.”
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Meanwhile, specifically, the objectives of the Bank for International Settlements are:
- Improve monetary and financial stability
- Facilitate a forum for discussion and cooperation between the central bank and the financial community
- Act as a bank for the central banks and international organizations.
Owner of the Bank for International Settlements
It is owned by 63 central banks and operates from Basel, Switzerland. Also, it has two representative offices in Hong Kong SAR and in Mexico City.
Functions of the Bank for International Settlements
The Bank for International Settlements Statute is chaired by three bodies: the general meeting of the board of directors, the member central banks, and the management of the Bank for International Settlements. Decisions regarding the functioning of the Bank for International Settlements are made at each level. They are based on a weighted vote arrangement.
In accomplishing its mission, the Bank for International Settlements meets bi-monthly. It is attended by Governors and other senior member central bank officials. The meeting was to encourage discussion and facilitate collaboration between central banks in promoting financial stability.
Through its committees, the Bank for International Settlements also conducts research and policy analysis on monetary and financial stability issues, provides an analysis of policy recommendations, and helps formulate international standards and best practices on relevant matters.
In international financial transactions, the Bank for International Settlements acts as the central bank’s principal counterparty. It provides various services to assist central banks and other official monetary institutions in managing their foreign exchange reserves.
Like other banks, the Bank for International Settlements strives to offer a premium service to attract central banks to become clients. To provide assurance of security, it maintains abundant capital and equity reserves.
The Bank for International Settlements supports central banks’ liquidity by offering services to buy back tradable instruments from them. Many of these instruments have been specially designed for the needs of central banks. It also conducts foreign exchange and gold transactions on behalf of its customers.
Furthermore, the Bank for International Settlements provides short-term credit to the central bank, usually on collateral. It also coordinates short-term emergency loans to countries experiencing financial crises.