The Role of the Bank for International Settlements in Shaping the World Financial System
136 Pages Posted: 3 Feb 2004
Date Written: January 2004
The Bank for International Settlements (BIS) was set up in Basle, Switzerland in 1923 to handle remaining financial issues from World War II largely having to do with German reparation payments. It was the first of the semi-public international banks. Over the years its functions have changed and, largely since the late 1970s, it has served as the situs for the world's central banks and financial regulators to pool their thinking and deal with international financial issues. A group of committees composed largely of representatives of central bankers now meet at BIS and have been issuing memoranda and drafts of regulations on a number of subjects affecting international banking. Among these are the regulation of capital, the management of international conglomerates and problems resulting from electronic banking.
Problems in world banking have sensitived observers to the absence of coordinated regulation and to the need for some form of unified control. That there is a need for one international bank regulator is increasingly acknowledged. BIS in Basle comes closer than any other organization to fulfilling this function. The International Monetary Fund comes close but is too politicized and has been too involved in attempting to meet a continuing series of crises to do any long range thinking. Only BIS has attracted the intellectual resources to analyze and resolve international problems in a thoughtful and deliberate manner. And only the BIS output is being adopted in the world's banking centers.
BIS has been proposed as a world senior financial regulator. The article acknowledges the rationale for such a decision but argues that now is not the time for such an attempt. Banking is, of course, conducted locally even though its reach is international. To anoint any body as a senior regulator with the power to impose its rules would require a massive set of compromises among national regulations in order to achieve one central set of rules. It would also essentially involve an abdication of measures of sovereignty by the constituent states. An effort of this kind would risk destroying the whole concept. Rather than start such a bold stroke at such an inopportune time, the article argues that the international banking world would fare far better assisting BIS to proceed down the track it is already on. As it continues to mature and as its edicts are increasingly accepted throughout the world it will continue to approach its rightful place as the world's bank regulator.
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