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Bank for International Settlements
Established in 1930 in Basel, Switzerland, the Bank for International Settlements (BIS) is a bank for central banks. It takes deposits from, and provides a wide range of services to, central banks, and through them, to the international financial system. The BIS also provides a forum for international monetary cooperation, consultation, and information exchange among central bankers; conducts monetary, economic, and financial research, and acts as an agent or trustee for international financial settlements.
When the BIS initially raised capital, participating banks were given the option to buy BIS shares or arrange for those shares to be bought by the public. Currently, 86 percent of the shares of the BIS are registered in the names of central banks, and 14 percent are held by private shareholders. The shares owned by private shareholders consist of part of the French and Belgian issues and all of the shares that were in the original U.S. issue in 1930.
All shareholders receive the Banks dividends. However, private shareholders do not have voting rights or representation at the BIS annual meetings. Only a country's central bank or its nominee may exercise the rights of representation and voting.
Board of Directors
The ex officio members are the heads of the central banks of Belgium, France, Germany, Italy, the United Kingdom, and the United States. Appointed directors, who are from those six countries, hold office for three years and are eligible for reappointment.
The BIS statutes provide for the election of not more than nine governors of other member central banks by a two-thirds majority. Elected directors serve for three years and are eligible for reelection.
Forum for International Monetary and Financial Cooperation
Basel Capital Accord
The Accord created capital requirements for the credit risk in banking assets. Credit risk is defined as the possibility of losses due to borrowers' defaults or decreased ability to repay their debts. Originally, the Accord applied only to large internationally active banks in G-10 countries, but over 100 countries have adopted it. Overall, implementation of the Accord has significantly increased the capital ratios of large international banks.
While the Accord has been a key element in promoting the safety and soundness of the banking system, financial innovation has exposed certain weaknesses in the current capital Accord. In particular, the Accord has lost some of its effectiveness in ensuring that capital requirements match a bank's true risk profile.
In June 1999, the Basel Committee on Banking Supervision proposed a new capital adequacy framework to replace the current Basel Accord. The proposed framework focuses on three "pillars": (1) minimum capital requirements, (2) supervisory review, and (3) market discipline. Together, the changes to the current Accord are designed to differentiate degrees of risk more accurately and to improve the risk management practices of banks. Also, the Committee is seeking to expand capital requirements beyond credit and market risks to include interest rate and operational risks.
The Committee received comments on the new proposal until March 2000 and plans to issue a final proposal in early 2001. Copies of "The New Capital Adequacy Framework" and "International Convergence of Capital Measurement and Capital Standards" (the 1988 Basel Capital Accord) are available.
Center for Economic, Financial, and Monetary Research
The BIS provides many investment services for its customers and it also lends to central banks some of the funds it receives as deposits from other central banks. The BIS has made short-term loans to central banks on both an uncollateralized and a collateralized basis.
On several occasions, the BIS has provided financial support to countries with the backing or guarantee of a group of leading central banks. For example, in 1998, the BIS coordinated a multi-billion dollar credit facility for the Central Bank of Brazil.
Agency and Trustee Functions
In April 1994, the BIS assumed new responsibilities in connection with the rescheduling of Brazilian external debt. The BIS acted as a collateral agent to hold and invest collateral for the benefit of the holders of certain U.S.-dollar-denominated bonds issued by Brazil under the rescheduling agreements.
Federal Reserves Relationship with the BIS