The Bank for International Settlements (BIS) is an organization of central banks. BIS was established in May 1930 and is the world’s oldest international financial organization. It is headquartered in Basel, Switzerland and has two representative offices in Hong Kong and Mexico City.
The monetary policy of every country is determined by its sovereign government. However, such policy is subject to central and private banking scrutiny and potentially to speculation that affects foreign exchange rates and this is more true of export economies. BIS, with its 57 member central banks, facilitates international financial cooperation and endeavors to make monetary policy more predictable and transparent.
BIS functions independently and is not accountable to any national government. It is more of the nature of a forum to promote discussion on policy formulation and analysis among central banks by acting as a centre for economic and monetary research. It acts as a trustee or an agent of central banks in handling international financial operations. Private individuals and corporate firms cannot transact business with the BIS as its customers are central banks and international organizations.
The role of BIS in international financial management is two-fold; to regulate capital adequacy and to infuse transparency in reserve requirements. Capital adequacy policy applies both to equity and capital assets, which can be overvalued in many circumstances. To prevent any miscalculation, the BIS mandate that the capital/asset ratio of central banks to be above a prescribed minimum international standard. The BIS play a crucial role in setting capital adequacy requirements. Ensuring capital adequacy is the most important problem between central banks from an international parlance, as speculative lending based on inadequate underlying capital and widely varying liability rules causes major monetary issues.
The BIS carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. The BIS hosts the secretariats of a number of independent organizations, without direct reporting links to the BIS and its member central banks. These are the Financial Stability Board (FSB), the International Association of Insurance Supervisors (IAIS) and the International Association of Deposit Insurers (IADI). 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.
The BIS also provides the Basel Committee on Banking Supervision with its twelve-member secretariat, and has played a pivotal role in establishing the Basel Capital Accords of 1988 and 2004.