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The Bank for International Settlements (BIS) is an intergovernmental organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks."[2] It is not accountable to any national government. The BIS carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. It also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the Hague agreements of 1930. The name of the BIS in German: Bank fr Internationalen Zahlungsausgleich (BIZ), in French: Banque des Rglements Internationaux (BRI), in Italian: Banca dei Regolamenti Internazionali (BRI). It has representative offices in Hong Kong and Mexico City.
Contents
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1 Organization of central banks o 1.1 Regulates capital adequacy o 1.2 Encourages reserve transparency 2 Tier 1 vs. Total capital 3 Goal: a financial safety net 4 History 5 Role in banking supervision 6 Members 7 General managers 8 Board of directors 9 See also 10 References 11 External links
As an organization of central banks, the BIS seeks to make monetary policy more predictable and transparent among its 60 member central banks. While monetary policy is determined by each sovereign nation, it is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and especially the fate of export economies. 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 unrealistic. 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.
The BIS sets "requirements on two categories of capital, Tier 1 capital and Total capital. Tier 1 capital is the book value of its stock plus retained earnings. Tier 2 capital is loan-loss reserves plus subordinated debt. Total capital is the sum of Tier 1 and Tier 2 capital. Tier 1 capital must be at least 4% of total risk-weighted assets. Total capital must be at least 8% of total riskweighted assets. When a bank creates a deposit to fund a loan, its assets and liabilities increase equally, with no increase in equity. That causes its capital ratio to drop. Thus the capital requirement limits the total amount of credit that a bank may issue. It is important to note that the capital requirement applies to assets while the bank reserve requirement applies to liabilities."[3]
[edit] History
The BIS was formed in 1930. The main actors in its establishment were the then-Governor of The Bank of England, Montagu Norman, and his German counterpart Hjalmar Schacht, later Adolf Hitler's finance minister. The Bank was originally intended to facilitate reparation payments imposed on Germany by the Treaty of Versailles after the First World War.[4] The need for the bank 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. The charter was adopted at a second Hague Conference on January 20, 1930. During the period 193345, the board of directors of the BIS included Walter Funk, a prominent Nazi official, and Emil Puhl, who were both convicted at the Nuremberg trials after World War II, as well as Herman Schmitz the director of IG Farben and Baron von Schroeder, the owner of the J.H.Stein Bank, the bank that held the deposits of the Gestapo. There were allegations that the BIS had helped the Germans loot assets from occupied countries during World War II. As a result of these allegations, at the Bretton Woods Conference in July 1944, Norway proposed 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 American and British
delegations. The liquidation of the bank was supported by other European delegates, as well as the United States (including Harry Dexter White, Secretary of the Treasury and Henry Morgenthau),[5] but opposed by John Maynard Keynes, head of the British delegation. The disagreement led to Chase Bank representative Dean Atchison interrupting Keynes at one of the conference sessions. Fearing that the BIS would be dissolved by President Franklin Delano Roosevelt, 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 undertaken.[6] The British delegation did not give up and the dissolution of the bank was still not accomplished when Roosevelt died. In April 1945, the new president Harry S. Truman and the British suspended the dissolution and the decision to liquidate the BIS was officially reversed in 1948.[7] The BIS was originally owned by both governments and private individuals, since the United States and France had decided to sell some of their shares to private investors. BIS shares traded on stock markets, which made the bank a unique organization: an international organization (in the technical sense of public international law), yet with 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[when?] the BIS has forcibly bought back all shares held by private investors, and is now wholly owned by its member central banks. Since 2004, the BIS has published its accounts in terms of Special Drawing Rights, or SDRs, replacing the Gold Franc as the bank's unit of account. As of March 2007 (end of month) the bank had total assets of $409.15 billion, given a dollar/SDR exchange rate of 1.51 for March 30, 2007. Included in that total is 150 tons of fine gold.