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Bank of International Settlements Definition

Bank for International Settlements Definition

The Bank for International Settlements is a global financial body that deals with promoting international monetary and financial stability.

A Little More on What is the Bank for International Settlements

The Bank for International Settlements (BIS) also referred to as “central bank for central banks” is an international financial institution that provides banking services to both local and international organizations such as the European Central Bank and Federal Reserve. The services provided by Bank for International Settlements include currency and gold transactions and provide short-term collateral loans to individual groups and other institutions.

Besides, the Bank for International Settlements also enhances coordination among various central banks around the world. The Bank for International Settlements is closely associated with the Basel Committee for Banking Supervision (BCBS) since the help in international financial regulation, and they are located in Basel, Switzerland. The BCBS is concerned and responsible for the Basel Accords, that institute the requirements and banking regulations that are implemented widely by the central government. The BIS on the hand, deals with researching economic issues avail the reports for policy development.

The BIS was founded in and incorporated 1930 and used by the German as a clearinghouse for war reparations that was implemented by the Treaty of Versailles. Its members previously comprised of Germany, France, Belgium, Britain, Switzerland, Italy, Japan, and US. The reparation was later disbanded following the founding of banks whereby the BIS became a counterparty and a forum for coordination of the financial transactions among central banks.

During the world war II, the bank was officially neutral institution. However, it was widely considered to be abetting the effort of Nazi war. After the end of the war, the allies made an agreement to disband BIS, but the disbandment failed to take place.

Even though the agreement of Bretton Woods remained in effects, the BIS significantly played a role in converting international currency. The institution also acted as the agent and a settlement system that aided in restoring the currency convertibility among the 18-country European Payments Union between 1950 to 1958.

Following the world transitioning to floating exchange rate that occurred in the 1970s, BIS and BCBS changed their focus to ensuring financial stability, and bank regulation based on the risks associated with their financial position. The propositions of the Basel Accord have been widely adopted by the various central government to regulate their banking institutions. The Basel III negotiations to mitigate the financial crisis were completed during December 2017.

References for Bank for International Settlements

Academic Research on Bank for International Settlements

  • The response of short-term bank lending rates to policy rates: a cross-country perspective, Borio, C. E., & Fritz, W. (1995). This paper provides an in-depth comparison of responses of short-term bank lending rates to policy rates. The study that was conducted in 12 industrialized countries focused on making comparison of their financial systems and policy environments.  The study discovered that loan competition and signal clarity associated with a change in policy are some of the key factors affecting the pass-through. The paper provides the evidence of mark-up pricing on average financing costs. However, there is no much support of systematic response on matters regarding an increase or decrease in the financial policy.
  • The bank for international settlements, Seabrooke, L. (2006). New Political Economy, 11(1), 141-149. This paper provides in-depth discussion about the roles and importance of the Bank for International Settlements. The paper further explains the requirements and regulation that are set by the Bank for International Settlements. Besides it also explores the monetary policies used by the Bank for International Settlements to regulate the economy during the financial crisis. According to the authors, most of the policies used by the government to control their banking system are derived from the policies instituted by Bank for International Settlements.

The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank, Estrella, A., & Mishkin, F. S. (1997). European economic review, 41(7), 1375-1401. This paper surveys the association of the interest rate`s term structure concerning monetary policy instruments and inflation in the US and Europe. The results of the study showed that the monetary policy is one of the most important determinants of the term structure. Besides, there is a high level of prediction for both real activity and inflation. Lastly, the study discovered that the yield is the accurate and simple model that should be considered as a useful technique to guide on monetary policy.

Information or regulation: What drives the international activities of commercial banks?, Buch, C. M. (2003). Journal of Money, Credit and Banking, 851-869. This paper examines the relationship between cost and regulatory barriers at the local and international financial markets. According to the author, regulatory barriers and information costs differs considerably at the national and international level. The study empirically determined the implication of information cost and regulation using panel data on consensual assets and liabilities of commercial banks. It was confirmed that regulations and information costs play an essential role in influencing the choice of the international asset of banks. However, their importance differs from one country to another.

On the covariance matrices used in value at risk models, Alexander, C. O., & Leigh, C. T. (1997). Journal of Derivatives, 4(3), 50-62. This article discusses the covariance matrices used at risk models for internal value. The study focuses on examining the performance of three univariate volatility forecasting models. These models include; the exponentially weighted average, equally weighted average squares, and the autoregressive model.  The study used standard statistical evaluation criteria using both foreign exchange and equity data. The year 1996 was considered to be the test period in which mix results were obtained. However, the result exponentially demonstrated a positive outcome on the average methodology used.

Monetary policy implementation: past, present, and future–will electronic money lead to the eventual demise of central banking? Freedman. (2000). International Finance, 3(2), 211-227. This paper explores the influence of central bank on short term interest rates with or without reserve requirements.  It then explores the impacts of the implementation of monetary policies on the spread of electronic money. It also looks into the potential for other ways to deal with settlement arrangements at central banks.  The study concludes that electronic money is likely to replace bank notes of the bank settlement services offered by the central bank in the near future. Moreover, the stored-value card is also most likely to replace the banknote, and the introduction of network money allows for alternative settlement services compared to bank services.

Why innovate? Founding the bank for international settlements, Simmons, B. A. (1993). World Politics, 45(3), 361-405. This article examines the importance of functionalist economic theories of dynamic contracting in understanding the innovation of the in the international finance during the 1920s. According to the author, the dynamic contracting theories presto develop a strong interest in making corporative international financial institution to help establish the credibility of the borrower.  The author presents that the need for corporative financial institution arises due to multilateral bargaining model between the private lenders, the borrowers, and the creditor government.

Deleveraging, what deleveraging? The 16th Geneva Report on the world economy, Buttiglione, L., Lane, P., Reichlin, L., & Reinhart, V. (2014). International Center for Monetary and Banking Studies/Center for Economic Policy Research, September. This paper presents a report about deleveraging and the international crisis related to finance.  The author provides that the global debt is highly increasing and thus greatly affects the international economy. The study argues that the policy path to volatile debt is narrow and therefore the developed economy is likely to experience low growth.

Implementing the macro-prudential approach to financial regulation and supervision, Borio, C. (2011). The Financial Crisis and the Regulation of Finance, 101-117. Currently, there is increased recognition in the policy need to strengthen the community of the need to strengthen financial regulatory and supervisory frameworks. As such this article presents various policies that can be put in place to control the interest rate in the economy.  The essay also summarizes the characterization and specific definition of the terms that was established in the early 2000s at the BIS and highlights the policies required for putting the approach into operation

The Bank for International Settlements and the Federal Reserve, Siegman, C. J. (1994). Fed. Res. Bull., 80, 900. This article explains in details the foundation and constitution of The Bank for International Settlements. It further explains the role of The Bank for International Settlements in regulating the financing of various central banks across the world. According to the author, provides that the Bank for International Settlement helps in coordinating the activities of the central banks across the globe. It also set the policies that are used by the central banks in giving out loans to the borrowers. These policies mainly focus on the regulation of interest rate to attain a stable economy.

The monetary transmission mechanism: evidence from the G-7 countries, Gerlach, S., & Smets, F. (1995). This paper compares the effects of international monetary policy ion prices and output in the G-7 countries.  The applies microeconomic models with prices, inputs, and short-term interest rate. From the result, it was discovered that monetary policy has shocking implication by making the assumptions that they do not affect real output instantly.  The effects of monetary policies on input, price and interest rate were found to the similar across countries. Therefore the study concluded that when developing monetary policy, the banks especially, central banks should take into consideration the monetary effects on output, prices and interest rate.

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