Bank of International Settlements

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 BIS 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 BIS coordinated antiterrorism financial monitoring.
One of the major activities of the BIS 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 BIS 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 BIS was created in 1930 as part of the Young Plan from the Treaty of Versailles ending World War I. The BIS 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 BIS efforts toward central bank coopera­tion. The BIS 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.