Bank for International Settlements

• 1. Introduction

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  The Bank for International Settlements opened its doors in Basel, Switzerland, on the 17th of May 1930 - and it has never really closed them since. Known by its initials, the BIS, it is the oldest international financial institution in existence. Its original job was unglamorous and deeply political: to manage the flow of war reparations that Germany owed to the victorious Allied powers after World War I. What happened next tells you everything about why this quietly powerful institution still matters nearly a century later. How does a bank created for a problem that no longer exists become the nerve center of global financial stability? Who actually runs it, and who does it serve? And why did the world's most important financial conference in 1944 vote to shut it down - only to change its mind?

• 2. A Century of Cooperation

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  Long before the BIS existed, central banks were already learning to lean on each other. In 1825, the Bank of France extended a loan of 400,000 pounds in gold coins to the Bank of England, which was facing a bank run. The Rothschilds facilitated the transaction. The two banks would borrow from and lend to each other again in 1836, 1839, and 1847.

  By the 1860s, the disruption caused by the early stages of the American Civil War pushed the Bank of France into a series of swap agreements with the Bank of England, the State Bank of the Russian Empire, and De Nederlandsche Bank. Those transactions became known informally as the 'war of the banks', a phrase reflecting the friction between French and English officials about the terms.

  The idea of something more permanent began circulating in academic and diplomatic circles. At the Brussels Conference in 1892, German academic Julius Wolff sketched a blueprint for an international currency, to be issued by an institution in a neutral country, specifically for emergency lending to national central banks. The following year, French economist Raphael-Georges Levy proposed establishing an international central bank in Bern.

  By the time of World War I, formal cooperation between allied central banks had accelerated sharply. In 1916, the Bank of England and Bank of France established a direct telegraph line between their offices. Similar formal agreements followed that year with the Federal Reserve Bank of New York, and in 1917 the Bank of Italy opened an office in New York. After the war, at the Genoa Conference of 1922, a resolution passed calling for 'an association or permanent understanding for cooperation amongst central banks, not necessarily limited to Europe, to coordinate credit policies.' The names behind that resolution included Ralph Hawtrey, Robert Horne, and John Maynard Keynes.

• 3. Reparations and the Birth Deal

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  Owen D. Young, an American banker, chaired the committee that designed the BIS. The Young Committee first met at the Bank of France, then worked through 28 successive sessions at the Hotel George V in Paris, with seven participating countries: Belgium, France, Germany, Italy, Japan, the United Kingdom, and the United States.

  Belgian banker Emile Francqui presented the first draft concept for the new bank. Bank of France governor Emile Moreau amended it. What emerged was a plan for a private institution - jointly owned by shareholders from all participating countries, including Germany - that would settle reparation payments, issue bonds backed by those payments, and provide international long-term credit. In an early memo to Young, Reichsbank president Hjalmar Schacht was the first to use the name 'International Settlements Bank' for the proposed institution.

  Finalizing the founding documents required a special Organisation Committee that met in Baden-Baden, at the discreet Hotel Stephanie. The committee was chaired by Jackson Reynolds, president of the First National Bank of New York. The work was marked by tragedy when Belgian delegate Leon Delacroix died of a heart attack during the proceedings.

  One persistent argument was over where to put the bank. Several delegates favored London. France vetoed that and proposed Brussels. The British vetoed Brussels. Amsterdam could not gather sufficient support. Basel eventually won out on two practical grounds: it was in a neutral country, and it had good railway connections. The BIS's founding texts were approved at the second part of the Hague conference, with English added alongside French as an official language. The BIS formally opened on the 17th of May 1930, ahead of the first German payments due in June under the Young Plan.

• 4. War, Gold, and Survival

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  In March 1939, the BIS transferred 23 tons of gold it held on behalf of Czechoslovakia to the German Reichsbank, following Germany's annexation of the country. The transfer was authorized by both the Bank of England and the Bank of France. Bank of England governor Montagu Norman approved it without consulting the UK Treasury, arguing at the time: 'I can't imagine any step more improper than to bring government into the current banking affairs of the BIS. I guess it would mean ruin.'

  When World War II broke out in September 1939, the BIS Board voted to keep the bank open but suspended Board meetings for the duration of the conflict. That neutral stance proved increasingly hard to sustain. At their peak, the Reichsbank together with central banks from Nazi-occupied countries held as much as 67.4 percent of the BIS voting stock. Reichsbank official Emil Puhl went so far as to describe the BIS as the Reichsbank's 'only real foreign branch.'

  Between 1933 and 1945 the BIS Board of Directors included Walther Funk, a prominent Nazi official, as well as Hermann Schmitz, the director of IG Farben. Both were later convicted of war crimes or crimes against humanity. Puhl himself was convicted at the Nuremberg Ministries Trial for processing dental gold looted from concentration camp victims.

  By 1943 the BIS's business volume had fallen 95 percent compared to the prewar period. Interest payments from the Reichsbank - made in gold from 1940 onwards, partly derived from Nazi plunder - made up 82 percent of its income by the war's end.

  At the Bretton Woods Conference of 1944, delegates voted to liquidate the BIS 'at the earliest possible moment.' John Maynard Keynes, heading the British delegation, opposed the dissolution and went to U.S. Treasury Secretary Henry Morgenthau Jr. hoping to block it. He failed. The resolution passed. But in April 1945, newly inaugurated U.S. president Harry S. Truman ended American participation in the liquidation scheme. The British government suspended the dissolution. In 1948, the decision was officially reversed, thanks in significant part to the advocacy of Belgian governor Maurice Frere.

• 5. Basel Rules the World

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  The collapse of Herstatt Bank in 1974 concentrated minds. That failure of a single internationally active German bank exposed how poorly equipped regulators were to handle cross-border bank collapses. The G10 governors responded by creating the Basel Committee on Banking Supervision at the BIS, a body that remains active today.

  From that starting point, the BIS became the primary venue for setting the global rules of banking. It hosted the development of the Basel Capital Accord of 1988 - known as Basel I - the Basel II framework in 2004, and the Basel III framework between 2010 and 2017. These accords set the capital adequacy ratios that internationally active commercial banks must maintain, requiring them to hold capital above a prescribed minimum to improve the sector's resilience.

  The BIS also served as secretariat for the Committee of Governors of the Central Banks of the Member States of the European Community from 1964 until 1993. In 1988-89 it hosted most of the meetings of the Delors Committee, which produced the blueprint for European monetary unification that was adopted in the Maastricht Treaty of 1992. When that committee was replaced by the European Monetary Institute - the forerunner of the European Central Bank - it moved from Basel to Frankfurt, ending its formal connection to the BIS.

  The BIS also coordinated the Gold Pool among central banks during the 1960s and managed currency support operations including the Sterling Group Arrangements of 1966 and 1968. From 1960 to 1975, the United States sent a senior Federal Reserve official, Charles Coombs, to attend the monthly governors' meetings in Basel, maintaining close contact while keeping a formal distance from the institution.

• 6. How the BIS Works Today

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  Sixty-three central bank jurisdictions now hold membership in the BIS: 34 in Europe, 16 in Asia, 5 in South America, 3 in North America, 3 in Africa, and 2 in Oceania. Membership grew from 33 shareholding central banks in 1995 to 60 in 2013, a group that together represents roughly 95 percent of global GDP. After Russia's invasion of Ukraine in 2022, the BIS suspended the Bank of Russia's membership in March of that year.

  The rhythm of the institution is set by its bimonthly meetings in Basel, held six times a year since 1998. On Sunday evenings, an inner circle of governors convenes at 7pm for the Economic Consultative Committee, followed by dinner that serves as a key moment of informal exchange. Monday morning brings the Global Economy Meeting, typically running from 9:30am to 12:30pm. Monday afternoon, the Governors' Meeting runs from 2pm to 5pm.

  The BIS also hosts the secretariats of the Financial Stability Board, the International Association of Insurance Supervisors, and the International Association of Deposit Insurers. Its Innovation Hub, launched in 2019, works on technology-based public goods for central banks. On the 30th of June 2024, the BIS signed an agreement with the central banks of Malaysia, Thailand, the Philippines, Singapore, and India to establish Project Nexus, a multilateral initiative to link domestic fast payment systems across borders, expected to go live by 2026.

  At the end of the financial year ending the 31st of March 2019, the BIS reported a balance sheet total of SDR 291.1 billion, equivalent to around US$403.7 billion, with a net profit of SDR 461.1 million. It denominates its finances in IMF special drawing rights rather than any single national currency. The BIS Innovation Hub maintains offices in Hong Kong, Singapore, Switzerland, London, Stockholm, and Toronto - a footprint that reflects how far the institution has traveled from its origins as a clearing house for post-war German debt.