Bank for International Settlements (BIS) in Switzerland

Monday, Jun 22, 2009

The Bank for International Settlements was established in 1930. It is the world's oldest international financial institution and remains the principal centre for international central bank cooperation.

The BIS was established in the context of the Young Plan (1930), which dealt with the issue of the reparation payments imposed on Germany by the Treaty of Versailles following the First World War. The new bank was to take over the functions previously performed by the Agent General for Reparations in Berlin: collection, administration and distribution of the annuities payable as reparations. The Bank's name is derived from this original role. The BIS was also created to act as a trustee for the Dawes and Young Loans (international loans issued to finance reparations) and to promote central bank cooperation in general.

The reparations issue quickly faded, focusing the Bank's activities entirely on cooperation among central banks and, increasingly, other agencies in pursuit of monetary and financial stability.

Bank for International Settlements, BIS History, http://www.bis.org/about/history.htm.

As per its charter, the BIS puts out an annual report:

This sudden change in financial conditions was blamed by some on shortcomings in the extension of the long-standing originate-to-distribute model to new mortgage products in recent years. Others, however, noted that the sudden deterioration in both financial and macroeconomic conditions looked more like a typical “bust” after a credit “boom”. Indeed, several factors seem to support this second hypothesis: the previous rapid growth of global monetary and credit aggregates; an extended period of low real interest rates; the unusually high price of many assets (both financial and real); and the way in which spending patterns in different countries (the United States and China in particular) reflected their different stages of financial development (encouraging consumption and investment respectively).

While central banks in all the major financial centres took action to reliquefy financial markets, the setting of policy rates diverged markedly in light of domestic macroeconomic circumstances. Some central banks were more concerned about actual inflation and raised policy rates, whereas others focused on the disinflationary pressures likely to emerge as growth slowed, and lowered policy rates instead.

Bank for International Settlements, BIS 78th Annual Report, June 30, 2008, http://www.bis.org/events/agm2008/ar2008o.htm.

As of April 30, 2009, with 1 SDR = $1.496, the BIS has $381 billion in assets; 8.6% in gold (~36 million ounces): http://www.bis.org/banking/balsheet/statofacc090430.pdf?noframes=1.