What is the Bank for International Settlements (BIS)?

The Bank for International Settlements (BIS) started in 1930 and is owned by the central banks of
different countries. It serves as a bank for member central banks, and its role is to foster
international monetary and financial stability and financial corporation.

The Bank for International Settlements is based in Basel, Switzerland, and it operates representative
offices in Hong Kong and Mexico City.

History of the BIS

The Bank of International Settlement was established out of the Hague Agreement of 1930, among
Germany, Belgium, Italy, France, the United Kingdom, Japan, Switzerland, and the United States. The
BIS first opened its offices on May 17, 1930.

Its main role was to collect, administrate and distribute reparations that were imposed on the
German Government by the Treaty of Versailles after World War I. It also acted as the trustee of the
Germany Young Loan, which was floated in 1930.

First Roles of the BIS

The task of facilitating reparation payments became obsolete after the Hoover Moratorium of June
1931 suspended it, and later, in July 1932, the Lausanne Agreement abolished the reparation
payments. After its initial function was terminated, the BIS was then tasked with fostering
cooperation between member central banks.

BIS worked to provide banking facilities to central banks and conduct meeting forums where central
bank governors would meet to deliberate. One of its initial activities as a bank for central banks was
to help the continental European central banks in shipping part of their gold reserves to London and
New York.

Post-World War II

After the outbreak of World War II, there were concerns about the continued operations of the bank.
The members agreed that the bank would remain open and that no meetings of the board of
directors would be held during the period of hostilities. The members also decided that the bank
would remain neutral while conducting its business.

However, as the war progressed, the BIS was seen as leaning towards the Germans, and there was
increasing discomfort from the UK and the US. During the Bretton Woods Conference in 1944, the
members agreed to liquidate the bank at the earliest possible moment.

The dissolution was supported by the American and European delegates but opposed by the British
delegation. However, the dissolution was halted in 1945 by the new US government and the British
government, and the decision to liquidate the BIS was terminated in 1948.

How the BIS operates

According to the BIS Charter that was formally adopted on January 20, 1930, both individuals and
central banks would subscribe to shares issued by the BIS. However, the charter limited the voting
rights and representation at the BIS meetings to central banks of countries in which the shares were
officially subscribed.

In 2001, the BIS reviewed the share subscription rights and restricted the share ownership to central
banks or equivalent monetary authorities in its respective member countries. The individual
shareholders were locked out of share ownership and were compensated rightfully.

Bank for central banks

The Bank of International Settlements functions as a bank, and it competes with other international
financial organizations for banking activities. Its clientele comprises central banks of its member
countries, but it does not hold current accounts for individuals and governments.BIS offers premium
services and high returns on invested funds as a way of attracting central banks. It maintains high
levels of equity capital and reserves that are invested in various portfolios to earn returns for the
institution. The BIS ensures the liquidity of its members by buying back tradable securities from the
central banks.

 Meetings

During the general meetings, all members are entitled to vote and be represented. The voting power
is equivalent to the number of shares issued in the country of each member at the meetings.The
most important meetings at the BIS are the regular meetings of governors and senior officials, which
are held every two months. The meetings provide a platform for members to discuss the global
economy, financial markets, and other issues that are of interest to the central banks.The Annual
General Meeting is held in late June or early July. The topics of discussions at this meeting include
distribution of profits and dividends, approval of annual financial reports, approval of allowances
paid to board members, and selection of the BIS’s external auditors.Also, the bank may sometimes
call for extraordinary general meetings when liquidating a bank, changing the equity capital, or
amending the BIS statutes.

 Decision-making bodies

The Bank of International Settlements is presided over by three decision-making bodies, which
include the general meetings of central banks, the board of directors, and the management of the
BIS. Decisions made at these levels are based on a weighted voting arrangement. The decisions are
of administrative and financial nature, and they relate to banking operations, allocation of budgetary
resources, and internal policies.

 Functions of the BIS

Some of the functions performed by the BIS include:

 Lender of last resort

As a banker to central banks, the BIS provides a wide range of financial services to assist central
banks and other monetary financial institutions in the management of foreign reserves. When
central banks want immediate liquidity, it offers credit services, as well as buys back
tradable financial instruments offered by these central banks.It also acts as a trustee in connection
with international financial operations, which helps promote global financial and monetary stability.

Seminars and workshops

The BIS organizes workshops and seminars focused on international financial issues through the
Financial Stability Institute (FSI). Through the FSI, the BIS popularizes the work undertaken by the
Basel Committee on Banking Supervision, as well as its recommendations on the financial
markets.FSI also organizes lectures and practical training on global financial stability. The meetings
of central bank executives, specialists, economists, and supervisors contribute to international
cooperation.

 Research and statistics

The BIS publishes research and statistics on global banking, foreign exchange, financial market
securities, and derivatives market. The information is shared across its member central banks to help
in their functions and decision-making.The research is also published in the banks’ regular
publications and external publications like academic journals. The research is conducted by the BIS’s
staff, as well as researchers from its member central banks.