Bank for International Settlements Bis Essay

  • Length: 10 pages
  • Sources: 10
  • Subject: Economics
  • Type: Essay
  • Paper: #75432570

Excerpt from Essay :

From its creation to 1988 it undertook banking functions and opined generally on the international banking system.

2. Starting in 1988 it began to assume the role of an unofficial international bank regulator. Although it had no official international status, its members -- central banks of the major banking countries -- were obligated by the nature of their membership to abide by its edicts and the rest of the world took them seriously.

3. Starting in the late 1990s, it began to consider itself the equivalent of an international bank regulator. Every subject of significance was within its jurisdiction and, although its legal powers were no greater, it assumed that it had a right to make rules for local banks to observe in the conduct of their businesses.

4. Sometime in the future there is a widespread anticipation that it will be given, through some treaty mechanism, the power to enforce its rules internationally.

Carl Felsenfeld)

BIS, IMF and World Bank

The interoperation between the three entities is understandably confusing to most people.

The International Monetary Fund (IMF) interacts with governments whereas the BIS interacts only with other central banks. The IMF loans money to national governments, and often these countries are in some kind of fiscal or monetary crisis. Furthermore, the IMF raises money by receiving "quota" contributions from its 184 member countries. Even though the member countries may borrow money to make their quota contributions, it is, in reality, all tax-payer money. (Wood)

The World Bank also lends money and has 184 member countries. Within the World Bank are two separate entities, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD focuses on middle income and credit-worthy poor countries, while the IDA focuses on the poorest of nations. In funding itself, the World Bank borrows money by direct lending from banks and by floating bond issues, and then loans this money through IBRD and IDA to troubled countries. (Wood)

The BIS, as central bank to the other central banks, facilitates the movement of money. They are well-known for issuing "bridge loans" to central banks in countries where IMF or World Bank money is pledged but has not yet been delivered. These bridge loans are then repaid by the respective governments when they receive the funds that had been promised by the IMF or World Bank. (Wood)

The IMF is the BIS' "ace in the hole" when monetary crisis hits. The 1998 Brazil currency crisis was caused by that country's inability to pay inordinate accumulated interest on loans made over a protracted period of time. These loans were extended by banks like Citigroup, J.P. Morgan Chase and FleetBoston, and they stood to lose a huge amount of money.

The August Review)

Recent Role

Between the 1970s and 1980s, the BIS monitored cross-border capital flows in the wake of the oil and debt crises, which in turn led to the development of regulatory supervision of internationally active banks.

The BIS has also emerged as an emergency "funder" to nations in trouble, coming to the aid of countries such as Mexico and Brazil during their debt crises in 1982 and 1998, respectively. In cases like these, where the International Monetary Fund is already in the country, emergency funding is provided through the IMF structured program.

The BIS has also functioned as trustee and agent. For example, from 1979 to 1994, the BIS was the agent for the European Monetary System, which is the administration that paved the way for a single European currency. (Carl Felsenfeld)

Notwithstanding all the roles mentioned above, the BIS has always been a promoter of central bank cooperation in an effort to ensure global monetary and financial stability.

Given the continuously changing global economic structure, the BIS has had to adapt to many different financial challenges. However, by focusing on providing traditional banking services to member central banks, the BIS essentially gives the "lender of last resort" a shoulder to lean on. In its aim to support global financial and monetary stability, the BIS is an integral part of the international economy. (Haekel)

Conclusions

The role of an international financial institution is to fuel the expansion of business globally, and to ensure confidence and liquidity in the markets. According to its own course of activity since its inception, the BIS has established itself as a credible, independent, and efficient financial institution. We have seen the bank grow gradually, fulfilling its mission, when called to step in. These are the fundamentals on which the bank stands tall today, while gradually expanding its activities. (Carl Felsenfeld)

Expansion of the bank's activities will come by increasing its authority. In the normal course, a course already set, it will naturally increase its role in coordinating and setting standards for the activities of central banks. One can see it acquiring certain powers of intervention the BIS' goal should be to reconcile and integrate different legal and policy frameworks. In the process, it should simplify existing procedures. However, it will need to offer very clear benefits to existing financial institutions, since increasing the BIS' authority will require major restructuring, investment and certainly, political endorsement. Its role will need to be clearly defined to avoid overlap with other institutions and to indicate precisely how its power will be exercised. (Carl Felsenfeld) two-tier system of supervisory responsibilities has taken over the supervision of international financial institutions. National authorities rule at the local level; supranational institutions are finding their places globally. A division of competence between national and supranational supervisory entities will be honed and pruned until the supranational authority will be a formal, law-making body. BIS seems the appropriate institution for this role.

Many prominent bankers, including former U.S. Secretary of Treasury, Robert E. Rubin, have made speeches calling for steps to strengthen the international financial architecture.

Unfortunately, this choice of words conjures up visions of an architect's blueprint and a floor-to-ceiling renovation, when this is not in fact how the international financial system evolves. It evolves incrementally, changing marginally in response to pressures from markets and governments, not discontinuously in response to radical visions. The existing system is made up of a dense network of social, economic and financial institutions. As with any network, its components are lent inertia by their interaction and evolve incrementally in response to technological and other stimuli. So it is with the international financial system. History supports this interpretation, and the associated prediction. (Carl Felsenfeld)

The Future?

Central bank cooperation depends on a few crucial parameters: the extent to which central bankers agree on theory; the extent to which they can agree on goals; the capacity (technical and institutional) to achieve their collective goals; and whether the broader political environment facilitates or impedes cooperation.

Among the G-10 countries, central bankers are likely to share political independence, relatively long-term horizons, and (increasingly) academic backgrounds. These conditions may be conducive to high levels of cooperation in the future. (BIS)

Cooperation to address global financial stability is a more difficult cooperative dilemma, with tensions between the need for efficient regulatory management and the inclusion of a broader range of cooperating institutions. In the area of exchange rate and monetary policy coordination, consensus among the major exchange rate authorities regarding the effectiveness of coordinated exchange market interventions has withered, though this does not preclude a new consensus from emerging in the future. One of the most significant challenges to central bank cooperation in the future will be how to include rising monetary and financial powers, particularly China, into the cooperative management of international monetary conditions.

In all of this, the Bank for International Settlements will play a crucial role. (BIS)

Bibliography

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Birdsall, Nancy. "Whither the IMF in the Current Crisis? Invite the Big Emerging Economies to the Table." 2 October 2008. Center for Global Development. 26 February 2009 http://blogs.cgdev.org/globaldevelopment/2008/10/whither_the_imf_in_the_current.php.

BIS. Bank for International Settlements (BIS). n.d. 25 February 2009 http://www.bis.org/about/index.htm.

Carl Felsenfeld, Genci Bilali. "The Role of the Bank for International Settlements in Shaping the World Financial System." January 2004. Social Science Research Network Electronic Library. 26 February 2009 http://ssrn.com/abstract=496022.

Haekel, Reem. "What is the Bank for International Settlements?" 2009. Investopedia. 26

February 2009 http://www.investopedia.com/articles/03/120903.asp.

Lawrence J. McQuillan, Peter C. Montgomery, ed. The International Monetary Fund: Financial

Medic to the World. Stanford, CA: Hoover Institution Press, 1999.

Montia, Gill. "Central Bank Body Warns of Great Depression." 9 June 2008. Banking Times. 26

February 2009 http://www.bankingtimes.co.uk/09062008-central-bank-body-warns-of-great-depression/.

Mundell, R.A. "The European Monetary System 50 Years after Bretton Woods: A Comparison

Between Two Systems." 25 November 1994. Columbia University. 26 February 2009 http://www.columbia.edu/~ram15/ABrettwds.htm.

Paul R. Krugman, Maurice Obstfeld, Addison Wesley. International Economics: Theory and Policy. Boston: Pearson Education Ltd., 2008.

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Wood, Patrick.…

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