What is the Bank for International Settlements?

Established in 1930 by the Hague Agreements, the Bank for International Settlements is an international organization that deals with monetary policy. It is located in Basel, Switzerland.

The BIS seeks to make monetary policy more transparent among the 55 central banks that are members of the group. It also acts as a central bank for these central banks.

In terms of monetary policy, the BIS has two major goals: to regulate capital adequacy and increase the transparency of reserve requirements.

For its capital adequacy regulation, the BIS requires all its member central banks to have a capital-asset ratio above a certain international set level. The capital-asset ratio assesses how much capital the bank has compared to the risk the bank has taken on. Maintaining capital adequacy is important from an international point of view, because speculative lending based on inadequate underlying capital can lead to economic crises. Settling capital adequacy requirements is the BIS's main role.

Another role of the BIS involves reserve requirements, which are important to consumers and the domestic economy. To help prevent bank runs and increase the safety of customers' deposits, banks are required to keep a certain amount of liquid money "on reserve" in the bank.

In modern times, the BIS has not made many standardizations of reserve rules at the international level, because of the difficulty of accurately assessing reserves for anything more complex than simple loan instruments. Reserve policy is often difficult to standardize because it is dependent on local conditions and the conditions of specific industries or regions. A blanket, international policy would not address the complexities of local conditions.

The BIS plays a relatively narrow role today, compared to its historical role.

The bank was originally formed in 1930, primarily by Montague Norman, the Governor of the Bank of England, and Hjalmar Schacht, later Adolf Hitler's finance minister. The BIS's original purpose was to facilitate money transfers from obligations stipulated in a peace treaty. The bank was suggested after World War I as a means through which Germany could pay its reparations. A charter for the bank was adopted at a conference at the Hague on January 20, 1930.

The BIS has been criticized for a lack of effectiveness and will to enforce any significant regulation, especially by critics of capitalism. Conspiracy theorists often accuse it for being a front organization, through which the wealthy elite controls the world.

As of March 31, 2007, the BIS's assets totaled $409.15 USD.

Reference: Patrick Wood, "Global Banking: The Bank for International Settlements."