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Bank for International Settlements and the Federal Reserve October 1994 900 The Bank for International Settlements and the Federal Reserve Charles J. Siegman, Senior Associate Director of the organization's name). However, its primary the Board's Division of International Finance, objectives, which have guided the Bank's activities prepared this article. since its inception and are reflected in its current role, were to promote cooperation among central On September 13, 1994, the Chairman of the Board banks and to provide additional facilities for inter- of Governors of the Federal Reserve System national financial operations. assumed the seat on the Board of Directors of the Over time, the BIS has evolved into a major Bank for International Settlements (BIS) desig- international institution, providing an important nated for the central bank of the United States. The forum for frequent consultation among central central bank of the United States has had the right bankers on a wide range of issues. In recent years to be represented on the BIS's Board of Directors the BIS has broadened its role by, for example, since the BIS was established more than sixty years mobilizing supplementary resources for the Inter- ago. For a variety of reasons, however, the Federal national Monetary Fund (IMF) and arranging Reserve had, until this year, never exercised its bridge financing for some heavily indebted middle- right. The Federal Reserve Board's decision to income developing countries and, more recently, assume representation on the BIS's Board was for some Eastern European countries.1 The BIS has made in recognition of the increasingly important also broadened its contacts with central banks out- role of the BIS as the principal forum for consulta- side Europe. tion, cooperation, and information exchange among Since the early 1960s, the BIS has hosted, nine central bankers and in anticipation of a broadening or ten times each year, meetings of central bank of that role. Federal Reserve membership on the governors of the Group of Ten (G-10) countries, BIS Board marks a new chapter in the relationship which provide a forum for ongoing discussion of of the Federal Reserve System with the BIS. issues of common interest.2 The BIS is also the site This article discusses the role of the BIS as an of periodic and ad hoc meetings of central bank international monetary institution, summarizes the officials in the subsidiary committees of the G-10 Federal Reserve's relationship with the BIS since central bank governors—the Basle Committee on that organization's founding, and provides back- Banking Supervision, the Committee on Payment ground information on the organizational structure and Settlement Systems (currently chaired by of the BIS and its financial operations. William J. McDonough, President of the Federal Reserve Bank of New York), the Euro-Currency Standing Committee, and the Gold and Foreign THE BIS'S ROLE AS AN INTERNATIONAL Exchange Committee. MONETARY INSTITUTION The Basle Committee on Banking Supervision developed the international agreement on mini- The Bank for International Settlements is an orga- mum capital standards for internationally active nization of central banks based in Basle, Switzer- land. It was established in 1930, and thus is the 1. The bridge financing consisted of short-term credits extended oldest functioning international financial organiza- until credits became available from the IMF, the International Bank tion. The BIS was formed for the practical purpose for Reconstruction and Development, and other sources. 2. The G-10 countries are Belgium, Canada, France, Germany, of coordinating Germany's World War I repara- Italy, Japan, the Netherlands, Sweden, Switzerland, the United tions payments (hence the term "settlements" in Kingdom, and the United States. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1994 901 banks and continues to be the forum for designing officials to draw on each other's experiences with a cooperative framework for supervision of interna- policy, operational, statistical, and technical issues. tional bank activities. Meetings of the Basle Com- The various meetings held under the auspices of mittee are also attended by bank supervisors from the BIS have become increasingly important to G-10 countries who represent institutions other central banks in carrying out their missions in an than the central banks. (Representing the United interdependent world. The information, under- States, for example, are officials from the Comp- standing, and analyses acquired at these meetings troller of the Currency and the Federal Deposit and through the statistical activities carried out Ml^pccr Corporation as well as the Federal under BIS auspices contribute to more effective Reserve.) and more efficient policies. The BIS has become The Committee on Payment and Settlement increasingly useful to central banks throughout the Systems has formulated principles and minimum world as a forum for collecting information, shar- standards for the operation and oversight of cross- ing insights, developing analyses, and cooperating border payment systems. Its ongoing efforts to find on a wide range of policy-related matters. ways to reduce risk in payment systems are funda- mental to international efforts to minimize the potential for systemic risk and to promote interna- THE FEDERAL RESERVE'S RELATIONSHIP tional financial stability. WITH THE BIS The numerous studies on a wide range of interna- tional financial, banking, and payment system The Federal Reserve over the years has played an issues prepared by the subsidiary committees of the active role in the meetings of the G-10 central bank G-10 central banks provide comprehensive infor- governors and of that group's subsidiary commit- mation for analyzing new developments and for tees and in the other specialized meetings of central addressing common financial, monetary, and super- bankers held at the BIS. Participation in the activi- visory issues facing central banks. For example, the ties held under the auspices of the BIS has helped Euro-Currency Standing Committee, which moni- the Federal Reserve in the implementation of U.S. tors and analyzes international financial markets in monetary policy and in carrying out its responsibil- the context of concerns about systemic risk, has ities for the supervision and stability of the U.S. initiated a coordinated reporting system for interna- banking and financial system in today's global tional banking data and has conducted a series of financial markets. studies of international interbank markets. Its most Although the Federal Reserve has been an active recent study of interbank relations, prepared by a and continuing participant in meetings on a wide working group chaired by a Federal Reserve staff range of central bank-related matters that are dis- member, is widely cited for having laid out for the cussed and analyzed under the auspices of the BIS, first time some of the major international impli- until this September its relationship with the BIS cations for central banks and market participants had been unique. The United States was the only of the increased use of derivative instruments, and country whose central bank had the continuous for having laid the foundation for subsequent dis- right, under the statutes of the BIS, to be repre- cussions and studies of derivatives at national and sented on the BIS's Board of Directors that had international levels. chosen not to do so. The BIS also organizes other specialized meet- The question of whether or not the Federal ings of central bankers, such as periodic meetings Reserve should join the BIS's Board of Directors of the Group of Computer Experts and the Group dates back to 1929, when the BIS was being of Experts on Monetary and Economic Data Bank formed. At that time, and in the 1930s, it was Questions, semiannual meetings of central bank concluded that because one of the principal func- economists and of coordinators of central bank tions of the BIS was to handle Germany's war technical assistance to Eastern Europe and the reparations, and because the United States was not former Soviet Union, and periodic meetings of a party to the reparations settlement with Germany, experts on monetary policy, money markets, and it was not appropriate for the Federal Reserve to legal matters. These meetings enable central bank join the BIS Board. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis October 1994 902 Federal Reserve Bulletin • September 1994 The issue of Federal Reserve representation on gress on the matter. That report, submitted in 1984, the BIS's Board of Directors was left in abeyance concluded: during the World War II period. During the war there were moves, supported by the U.S govern- [We] see no urgent need to change the current rela- tionship of the Federal Reserve with the BIS and the ment, to liquidate the BIS, particularly because assumption by the Federal Reserve of the seat on the the new Bretton Woods institutions (the IMF and Board of Directors of the BIS that is reserved for the the International Bank for Reconstruction and Governor of the central bank of the United States. In the Development) were viewed as the primary organi- absence of a strong case to change the current status of zations for dealing with postwar international mon- the United States relationship with the BIS, there are certain technical and policy reservations that militate etary affairs. After the war, the U.S. government against the Federal Reserve's becoming a member of the reconsidered its position with regard to the BIS, Board of Directors of the BIS. This matter obviously acknowledging that the BIS was able to perform deserves to be reviewed periodically in light of evolving some functions that would be beneficial for the developments in the international monetary and financial international monetary system that the new Bretton system. Woods institutions were not in a position to handle, for example, certain activities in connection with Previous technical and policy reservations about Marshall Plan aid to Western Europe.
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