Conclusion and Summary of Bank of International Settlements
Bank of International Settlements (BIS) was originally created in 1930 in Basle (Switzerland) by most European banks to act as a coordinator of German reparations. BIS act as a key player in the management and supervision of the international financial system. It is basically support member countries which include major European nations and Australia, Brazil, Canada, China, India, Japan, Korea, Mexico, Russia, Saudi Arabia, Singapore, and South Africa to settle short-term currency fluctuations. Every month BIS has a meeting with major central banks, and publishes an extensive influential annual review of the state of the global banking system.
The Bank of International Settlements (BIS) can safely be called the oldest international financial institutions. It is a central bank for central banks. The BIS is streamlining the regulation of activities of private international banks. BIS has been in helping to define national bank regulatory responsibility for foreign banking failures and publish the capital adequacy rules for international banks. The BIS has an excellence international staff and has the respect of the global central bank community.
Since the mid-1970s, the Basel Committee on Bank Supervision obtains an international reputation for the work it has achieved. Its two Basle Concordats have defined the bank supervisory responsibilities authorities in the case of foreign bank unit failures. Its work on bank capital adequacy clarify in the Basle Accords of 1988 and 2001, have placed banks on noticed to preserve more capital to cover the risky loans and investments. Its work with national bank regulatory authorities after the BCCI case has facilitated the progress in the coordination of bank supervisory policy. It was designed for the central banks of G10 countries but most have been used in emerging and transform economies and to smaller banks in industrialized nations.
The BIS is carried out major operations that is highly positive and have contributed significantly to central banking efficiency and bank regulatory activities. However, it has a cloud in the past, especially the relationship with bank of Nazi Germany and the Swiss banking industry in the 1930s and 1940s.
Finally, the BIS Board is made the decision on January 8, 2001, to control share ownership to central banks and to remunerate private shareholders for their shares needs a comment. The BIS Board is rationalized this decision by explains the objectives of the BIS and the private shareholders were in conflict and suggest that the private owners may somehow hinder the fulfillment of the BIS’ goals.
The Bank for International Settlements (BIS) is a global center for financial and economic interests. Therefore, it has been a main architect in the development of the global financial market. Given the dynamic characteristics of social, political and economic situations around the world, the BIS can be seen as a stabilizing force, stimulate financial stability and international prosperity in the face of global change.
BIS is near the bottom of all other dimensions with the exception of its appraisal capabilities where it ranks fifth. BIS either fails to involve good practice principles in its policies or makes no promises at all. In this case BIS should undertake a series of reforms. They must exploit an organization-wide policy on disclosure of information that commits to good practice principles for example responding to information requests in a certain time period and identifying a narrowly defined set of conditions for secrecy. They also have to start resolve the issue of external stakeholder participation and develop a coherent and detailed policy that determine the main principles that will guide the participation of different stakeholder groups.
A meeting place for central banks
Nowadays more than 5,000 senior executives and officials from central banks and regulatory agencies participate in meetings that organized by the Bank for International Settlements (BIS) annually.
The regular meetings of Governors and senior officials of member central banks are the most important meetings held at the BIS. The meeting is held in Basel every two months. These meetings provide a chance for participants to discuss the world economy and financial markets, and to exchange opinions on topical issues of central bank interest. The main outcome of these meetings is a better understanding by participants of the developments, challenges and policies implications of each country or market. An open atmosphere, frankness and informal amongst participants is critical to the success of BIS meetings.
Other meetings of senior officials of the central bank focus on the implementation of monetary policy, the surveillance of international financial markets and the governance issues of central bank. Besides, the BIS organizes frequent meetings of experts on monetary and financial stability issues as well as on more technical issues for example legal matters, reserve management, IT systems, internal audit and technical cooperation. Although the most targeted at central banks, the BIS meetings sometimes include senior officials and experts from other financial market authorities, the academic community and market participants.
Research and statistics
The economic, monetary, financial and legal aspect of the BIS supports its meetings and the Basel-based committees’ activities. The BIS is also a center for sharing statistical information between central banks, and for releasing statistics on global banking, securities, foreign exchange and derivatives markets.
The study is carried out primarily by the BIS staff, supplemented by visiting researchers from central banks and the academic community. From time to time, BIS organizes special meetings and meeting with central bank researchers and academics.
This research search its way into the Bank's regular publications, for example the Annual Report and Quarterly Review, and into its BIS Papers and Working Papers series, as well as external publications for example professional journals.
Seminars and workshops
Through seminars and workshops organized by its Financial Stability Institute (FSI), dissemination of the work undertaken by the supervisory community is promoted by BIS. The FSI is familiarizes financial sector supervisors worldwide with the recommendations of the Basel Committee on Banking Supervision and also offers practical training for senior participants.
Cooperation with regional central bank groupings also contribute to make the information about BIS activities better known. Such cooperation takes the form of participation in meetings by regional central bank groups and the organization of ad hoc joint meetings or seminars.
Banking services for central banks
The BIS provides an extensive of financial services to help central banks and other official monetary institutions in the management of their foreign reserves. About 140 customers, involving various international financial institutions are currently using these services. BIS is providing financial services to two linked trading rooms: one at its Basel head office and another one at its office in Hong Kong SAR.
BIS ranks fifth among assessed IGOs for their assessment competency with a score of 76 percent. BIS’s Internal Audit Charter guides assessment processes within the organization. This document describes the mission, independence and objectivity, scope and responsibilities, powers, duties, and standards of the Internal Audit Function. The activities of the Audit Function ranges from reviewing risk management procedures and internal control systems to best practice reviews and regulatory requirement evaluation. The Charter involves commitments to using appraisals results to inform future decision-making and to appraise internal management processes and operations. Good practice principles however are missing: for example including external stakeholders in the assessment of issues that impact them and committing to being open and transparent about appraisal results. The Charter is supported by a strong management system. The Head of Internal Audit, who reports directly to the Audit Committee of the Board of Directors, responsible for supervise the Internal Audit Charter. The policy also provided training to those involved in the assessment process. BIS also makes the Charter available through more than one medium and provides French, German, and Italian translation requirements. To ensure the lessons learnt from internal audits are spread between staff, the Executive Committee holds regular meetings with general staff, while the CEO has feed-back sessions with senior line managers every two weeks
Complaint and Response Dimension
BIS rank seventh among the ten assessed IGOs for their complaint and response competency with 33 percent. BIS do not has a policy on handling complaints from external stakeholders, but it has a Code of Conduct for staff with a section on internal complaints. The organization also established a Compliance Charter, which describes the duties of the Compliance Unit and the principles for conducting compliance reviews. The Code of Conduct and the Compliance Charter require significant improvement as both only commit to one good practice principle. The Code ensures non-retaliation against complainants, and the Charter is ensuring independence of the investigations. In dealing with the complainants to reflect good practice, BIS needs to amend the Code and the Charter to involve such commitments as maintaining the confidentiality of the complainants. BIS has a good management system to support its internal complaint policies.
The General Manager has ultimate responsibility for the Code of Conduct, while the Head of Compliance is in charge of supervise compliance investigations. BIS offers training for all staff on whistleblower issues through an internal manual called Compliance Investigations at the BIS. BIS also spread the policies through variety of mediums, involving the intranet, staff inductions, and internal manuals; however, it did not translate the policies.
An Evaluation of the BIS
We will evaluate the performance of the BIS in this section. We are divide it into two parts. In the first part we look at the past and offer a qualitative “score card” of how well the Bank has done in meeting explicit and implicit objectives. In the second part, we project into the future and examine on the prospective role of the BIS in a rapidly developing international financial system.
There have six performance criteria which are performance in meeting the initial mandate; performance in meeting new goals; performance as a private supplier of services to central banks in relation to market-provided alternatives; performance is measured on a cost-benefit basis; Performance relative to Bretton Woods organizations; and transparency of the Bank’s operations.
The first performance criterion is performance in meeting the initial mandate. Of the two initial objectives, German Reparations is long gone and the other is central bank cooperation, is central to today’s activities of the Bank.
The second performance criterion is performance in meeting new goals. The BIS has an adaptive to meet new challenges and redefine its role. The two examples of the evolving role of the Banks are The Basel Concordat and minimum capital requirements for internationally active banks.
The third performance criterion is performance as a private supplier of services to central banks in relation to market-provided alternatives. This seems to be satisfactory because the members are continued to use the Bank, yet little is known about such transactions. One concern is the potential for central banks to control the market through the confidential facilities of the BIS.
The fourth performance criterion is performance is measured on a cost-benefit basis. A thorough appraisal of this criterion is beyond our means. On one important piece of evidence, the Bank is satisfying this criterion which is busy central bank governors and other senior officials apply too much of their private time to travel to Basel suggesting that they view the investment as being worthwhile.
The Fifth performance criterion is performance relative to Bretton Woods organizations. There have two important reasons for the BIS success are the non-governmental nature of the organization and the small and homogeneous membership. The nature of the organization has tended to isolation the Bank from intrusion politics. The small membership has set free riding, while at the same time does not prevent the Bank from working with other countries.
The sixth performance criterion is transparency of the Bank’s operations. The Bank retains a mysterious aura, which is less known than the IMF and the World Bank.
The Future Prospects of the BIS
The BIS has performed almost 70 years and continues to play an important role in the market place. There have six reasons which are: First, the Bank has decreased the negative externalities in international financial transactions attributable to financial institutions that deal with counterparties from jurisdictions with poor regulation. The good example for such externalities is the failure of the Bank of Credit and Commerce International. That failure guides the Basel Committee to revise its work on the supervision of internationally active banks. It was a response to “market” developments.
Second, it is more difficult to forecast the types of future international financial crises whether sparked by monetary, real or banking factors to which national central banks and treasuries will be called to respond. Financial history is including incidents of inadequate or outright wrong responses by central banks to financial crises. The integration of national capital markets emphasize cross-border spillovers and, therefore, raise the value for central banks and financial regulators to coordinate their activities. The bad regulation by financially important countries in an integrated world capital market can be described as a bad apple in a basket of good apples.
Third, who should play this role if a coordinator is beneficial? Private banks or an international organization like the BIS? This is a more complicated question that involving the relative incentive and ability of different coordinators to conceal or hide financial activities from either the markets or the governments. Central banks have preferred secrecy to transparency.
Fourth, given the uncertainty about the type of shocks that may affect financial crisis and the fast pace of financial innovation, the coordinator needs to have flexibility in adjusting the strategy to change the circumstances. This is because the multiplicity of possibilities and national circumstances makes it obvious that no general rule can be create a specific action in case of a banking crisis that was not of purely local character. The long history of the BIS can prove that this institution can adapt. Adaptation has become possible by a relatively nimble organization and by the membership of a small and uniform. The larger organizations cannot adapt as well because of their universal membership and a nimiety of objectives.
Fifth, the comparative advantage of the BIS is in publishing the financial core principles or standards of best practices, and persuading financially important countries to adopt them. The BCBS has produced a list of core principles and is to amend them. The implementation of standards should be left to national regulators who have the power and the detailed local knowledge for effective implementation. A risk with local enforcement is that standards may not turn out to be uniformly applied, therefore giving a chance to some institutions to increase a competitive advantage over others. However, the local implementation does not mean that the BIS or the IMF would be powerless in encouraging proper enforcement.
Sixth, the role of the BIS can be carried out by competing international organizations? The comparative advantage of the Bank is resulting from a more alacrity organization and a more focused membership. However, there have many international financial institutions are competing in the same market. While we support competition between regulators and institutions, it does not seem to be a well thought out plan for the mandates of these organizations. Typically, these take a lot of energy and resources to find some common ground. Cooperation was originally expensive and incomplete. For example, the Forum calls for broad participation of international organizations, involving the BIS, the IMF, World Bank, OECD, the BCBS, IOSCO, and IAIS. However, inclusive memberships appear when there is no clear view of who does what; they are also invalid. A redefinition of jurisdictions and objectives can be done politically, on the top level and through a Bretton Woods-style meeting, or through an open competition. We know that the premise for either solution does not exist at present. We know that the premises for any solution do not exist at present. The most likely result is that the future will provide us more international institutions with increasingly overlapping memberships and objectives.
The Bank as a Crisis Manager
The Bank for International Settlements (BIS) has been commendable adaptability to meet new challenges and redefine its role. The two examples of the evolving role of the Bank are The Basel Concordat and minimum capital requirements for internationally active banks. The institution’s comparative advantage lies in the fact that it is a forum for central bank and regulatory cooperation, and financial institution in its own right.
The liquidity crisis management has received no attention by either the BIS or the collateral institution Basel Committee on Banking Supervision. However, the provision of liquidity during times of financial crisis is just as important as the establishment of good management practices and sound supervisory practices.
In the domestic market, usually the central bank is charged with the task of being a lender of last resort. The Federal Reserve System relied on this provision to calm the financial markets in the wake of the 1987 sharp stock market decline. In the international arena there is no similar institution. Meltzer (1998) states that the creation of ILOL that would charge penalty rates, the interest rate is higher than the prevailing money market interest rates, against marketable collateral. The collateral requirement will induce national central banks to hold a "preventive" stock of internationally traded assets and, therefore, decrease the likelihood of a liquidity crisis. National central banks, in turn, would extend loans denominated in main currencies to banks under liquidity pressure.
In the international liquidity crisis, national central banks run out of short-term assets denominated in the main currencies of the world. There are a few of these currencies: in descending order the U.S. dollar, the German mark, the Japanese yen, the British pound, the Swiss franc, and the French franc. With the establishment of the European Monetary Union, the number of the major currencies will be further reduced. Thus, the number of central banks will be potentially called to offer ILOL services: in descending order the Federal Reserve System, the European Central Bank, the Bank of Japan, the Bank of England, and the Swiss National Bank. The BIS would act as a coordinator of the few ILOL providers desired by the market.
The Bank has a long experience in dealing with central banks and in coordinating their financial activities. It has some of the central banks' reserve assets, consists of gold and currencies, and invests them in international bank deposits, securities and government treasury bills. During the Bretton Woods regime the BIS routinely arranged and coordinated multi-party exchange agreements. The BIS is the agent for some international loan issues and a collateral trustee for some international bond issues. In addition, the BIS coordinates international loans to national central banks, the last being the $13.28 billion facility to the Banco Central do Brazil, ensured by 19 central banks with a $1.25 billion parallel facility by the Bank of Japan. Finally, the most important is BIS is more flexible and less political than the International Monetary Fund (IMF).
As an ILOL coordinator, BIS will act as lead manager for any international loan facility that consists of due diligence, choice of applicable law, setting an interest rate to clear the market on a risk-adjusted basis as well as a collateral agent. As collateral agent, the BIS will prove that a sufficient amount of marketable assets denominated in major currencies exists and can be protected. By sufficient amount, is the BIS will have to decide whether the collateralized assets would be sufficient to cover an agreed upon ratio of collateral to principal plus accrued interest. This proportion will vary with the type of collateral and volatility. In addition, as a collateral agent, the BIS will take the appropriate covenants to assure the assets, and monitor this collateral and the actions of the borrower to guarantee agreement and compliance with loan covenants. Examples of these covenants would be that the liquidity loan be ranked ahead of other types of indebtedness and that the courts of the United Kingdom or the State of New York, the most common used in these transactions, have legal status. As an interest-rate setter, the BIS will require five ILOL providers whether they would be willing to satisfy the loan requirements, for example, the London Interbank Borrowing Rate (LIBOR) plus 2 percentage points. If this requirement is not fully met at that rate, the penalty rate would rise, that is, to LIBOR plus 3, and so on.
It is important that the liquidity loan be offered at penalty rates; otherwise, the ILOL providers would encourage moral hazard and repeat the past mistakes. To ensure this, the BIS and the ILOL providers may be invited private commercial banks to bid on some liquidity loan. If the private quota goes unfilled or partially filled, it will conclude that the loan had been subsidized. To signal that there is not mispriced of the liquidity loan but allow a rapid response, the private quota could be set very low, between 5 to 10 per cent of total loan.
Under the proposed plan, the ILOL providers will not take a formal vote on whether to extend a liquidity loan. They will vote with their feet, or better with their pocket. An unfilled request will mean that either grosses mispricing of the loan or lack of guarantees on the collateral or both. An unfilled private quota will means the presence of a subsidy in the loan. In short, the proposal is market friendly.
Advantages of BIS
Bank of International Settlements (BIS) is fostering cooperation between the central banks and other institutions in pursuit of monetary and financial stability. In order to pursuit of monetary and financial stability, the BIS is offering emergency financial assistance to central banks in case of need; and supporting experts from national central banks and regulatory bodies in proposing measures and developing standards aimed at strengthening the international financial architecture, and in particular international banking supervision.
The BIS is access into agreements to act as trustee or agent in connection with international settlements, provided that these agreements will not invade and occupy on the obligations of the BIS toward any third parties.
The BIS has a long history of working with central banks and providing support and direction for market economies facing financial crisis. The BIS can even provide emergency short-term funding relief if necessary to guarantee the overall stability of the international financial system. When the allocation of funds, the BIS draws from the foreign exchange deposits it holds for many of the world’s central banks. Essentially, the BIS manipulate under the authority of, and on behalf of, the member central banks when providing financial assistance. The BIS also offers emergency financing to support the international monetary system when needed. In the 1931-1933 financial crisis, the BIS organized support credits for central bank of both Austrian and German. During the 1960s, the BIS arranged special support credits for the French franc (1968), and two so-called Group Arrangements (1966 and 1968) to support the pound. Recently, BIS is providing finance in the context of IMF-led stabilization programmes.
The BIS is carrying out widely research in matters of multi-national finance and international law. It serves as a central repository for this information, making available to all members.
The BIS also organizes other specialized meetings of central bankers, such as periodic meetings of the Group of Computer Experts and the Group of Experts on Monetary and Economic Data Bank Questions, semiannual meetings of central bank economists and of coordinators of central bank technical assistance to Eastern Europe. The Eastern Europe countries, especially those who are allied with the USSR in the Warsaw Pact was founded in 1955 and dissolved in 1991. And the former Soviet Union, and periodic meetings of experts on monetary policy, money markets, and legal matters. These meetings allow the central bank officials to draw on each other's experiences with policy, operational, statistical, and technical problems. The various meetings held under the auspices of BIS has become increasingly important to central banks in developing their missions in the interdependent world. The information, understanding, and analyses acquired at such meetings and through the statistical analysis carried out under BIS auspices contribute to more effective and more efficient policies. The BIS has become important to central banks throughout the world as a forum for collecting information, sharing ideas, developing analyses, and cooperating on a wide range of policy-related matters.
Capital adequacy policy applies to equity and capital assets. These can be overestimated in many circumstances. Accordingly the BIS require the capital or asset ratio of central banks to be higher than the prescribed minimum international standard, for the protection of all central banks involved. The main role of BIS is in setting capital adequacy requirements. From the international point of view, the most important issue between centrals banks is to ensuring capital adequacy, as speculative lending based on inadequate underlying capital and widely varying liability rules causes economic crises as "bad money drives out good" (Gresham's Law).
The Bank continued to adapt its product range in order to more effectively respond to the evolving needs of central banks. Besides standard services for example sight or notice accounts and fixed-term deposits, the Bank has developed a range of more complex financial products which central banks can actively trade with the BIS to raise the return on their foreign assets. The Bank also manages foreign exchange and gold on behalf of its customers.
The BIS provides a range of asset management services in sovereign bonds or high-grade assets. These can be either a specific portfolio mandate conference between the BIS and a central bank or an open-end fund structure – the BIS Investment Pool (BISIP) – enables customers to invest in a common pool of assets. Both of the Asian Bond Funds 1 (ABF1) and Asian Bond Funds 2 (ABF2) are administered by the BIS under the BISIP umbrella: ABF1 is managed by the BIS and ABF2 is managed by a group of external fund managers.
BIS extends short-term credits to central banks, usually on a collateralized basis. From time to time, the BIS also coordinates emergency short-term loans to the countries during financial crisis. In these circumstances, the BIS advance funds on behalf of, and with the support and guarantee of, a team of supporting central banks.
The Bank has built up a huge equity capital and adequate reserves to provide security. It pursues an investment strategy that focused on combining diversification benefits with intensive credit and market risk analysis.
The Bank basic role in the maturity transformation of short-term deposits into long-term loans makes banks inherently weak to liquidity risk, both of an institution-specific nature and it affects the entire market. Virtually every financial transaction or commitment has implications for the liquidity of the bank. Effective liquidity risk management helps to ensure the ability of banks to meet cash flow obligations, which are uncertain as they are affected by external events and the behavior of other agents. Liquidity risk management is of extremely importance because a liquidity shortage at a single institution can have system-wide repercussions. In the past 10 years, the financial market developments have increased the complexity of liquidity risk and its management.
The BIS provides an attractive and competitive return on the funds deposited by central banks and international organizations.
Disadvantages of BIS
Although the BIS is the oldest operating international financial institution and has been a precious asset in creating and protecting economic stability, the bank is not without its critics. Some of the critics believe that BIS as an organization through which a wealthy elite controls the world. Critics are worried that it may have the power to shift billions of dollars too easily since control in the BIS is in the hands of a handful of developed countries central banks. The examples of these complaints are including the way in which the BIS and the IMF have responded to financial crises. Although the IMF bears the brunt of the criticism for these bailouts, the BIS has also been criticized for its involvement. The critics view the wealthy Wall Street creditors who fund the bailouts have a lot of input into the monetary policies implement in the countries in crisis. To alleviate this problem, it was recommended that international financial institutions, for example the BIS, should have a formal representation from developing countries, which have experienced growing importance in the global economy.
The BIS has another main criticism which is its obscurity and confidential. These critics are encouraged BIS to increase transparency in their operations. The supporters of the BIS’s secrecy, however, insist that some secrecy is necessary when the BIS facilitate transactions between central banks. For example, if the impact of some transactions in foreign exchange or gold is made public, then serious consequences maybe happen in the international financial markets. The other critics have call for the BIS to take a better leadership role in increasing the transparency in other financial and banking transactions around the world. They warn that this transparency is essential to reduce the unfairness to consumers and investors that happens when the right information is not made public. Although the Code of Good Practices on Transparency in Monetary and Financial Policies published with the IMF is a good begin, critics are believe that it will take more than general principles to encourage the essential transparency. The BIS, with its affiliations with other multilateral financial institutions and the connection with the central banks, is in a great position to take the lead role in this work.
In addition, the Bank's Statutes are not allowed the Bank to open current accounts in the name of, or make progress to, governments. The BIS does not accept deposits from, or generally offer financial services to, private individuals or legal entities.
Every country should reevaluate their management structures with a view to removing unnecessary overlaps, gaps in coverage and complexity, eliminating the potential for regulatory arbitrage, and improving the regulatory coordination. The central banks should take a role in promoting and preserving financial stability. Expectation should be that concerns about the financial stability are relevant not just in times of financial crisis, but also in times of rapid credit expansion and increased use of leverage that may lead to crises.
In some countries where the central bank is not the prudential regulator, the central bank must have a strong role on the managing body of the prudential and markets regulator; a formal review role with respect to proposed changes in key prudential policies, particularly the capital and liquidity policies and margin arrangements; and a supervisory role in regard to the largest systemically-significant firms, and key payment and settlement systems.
Recommendation for the BIS in a Network of International Financial Institutions
Recent and past history records multiple and a wide variety of international financial crises. These could be the necessary cost to pay for a liberal order. Financial repression at home and controls on international capital flows may avoid such crises, but we would lose the greater benefits of a competitive and innovative financial system. In todays free environment the BIS enable to play a valid role in against and managing crises. Its flexible membership and organization gives it a comparative advantage related to universal international financial organizations burdened with a excessive of objectives. Whatever the form of the international financial structure in the future, the BIS has a legality claim of being part of it.
Although flexible in the relative terms, BIS remains a complex institution, a reflection of a rich and long history. The Bank is able to benefit from an organizational re-structuring around the challenges that is trying to meet. For example, financial supervision activity is assigned among an array of committees with different memberships and different goals. Such activities are driven by current demands, often dictated by crises, rather than by a long-term plan. In addition, the bank regulatory issues must be approved by the central bank governors, even though the central banks are not involved with the regulation in their countries. Confusion exists between the work appropriate of the Bank and the various committees for which the Bank acts as a secretariat. It would be in the interest of the Bank to enhance its objectives and strategies, and make them more transparent.
The main business of BIS is in promulgating a set of international standards of best financial practices that are voluntarily be used by a key group of financially important countries. Implementations of such standards are and should be left to local regulatory and supervisory authorities. There have two reasons which are: First, it is wishful thinking that national authorities may perish or be replaced by an all-powerful international agency. But just as importantly, supervision and monitoring are hands-on affairs that require intimate knowledge of local institutions and management, which cannot be assigned to a distant and unaccountable international enforcer.
Local enforcement does not mean that the BIS or the IMF would be incompetence in encouraging appropriate enforcement. First of all, once accept the international standards, the market operators would find it in their own interests to perform a “financial night watchman” activity. Secondly, the appropriate enforcement would come under the stick of the Basel Concordat, which allows host country regulators the privilege to refuse access into their domestic markets to poorly regulated institutions from foreign countries. Thirdly, BIS can use its own carrots and sticks through the provision of the international lending of last resort.
BIS is the ideal institution to coordinate international lending in times of liquidity crises. There are a handful of major currencies and major central banks in the world. Given its historical role as a central bank club, the BIS can be easily coordinated the lending by major central banks to liquidity shortage central banks. This type of lending would need good and sufficient collateral and penalty interest rates. As part of carrots and sticks system, the BIS can provide favorable lending of last resort terms to those countries that are appropriately implement regulatory standards.
Interest conflicts and moral hazard are important factors underlying international financial crises. An independent organization such as BIS is able to reduce them. Therefore, the independence of the BIS, formulated around the supervision of central bank governors, not governments, should be carefully guarded. As BIS becomes more involved with financial supervision and government ministries other than central banks, institutional independence runs the risk of being challenged. The push for a wider membership, considered necessary for the success of international regulation and supervision, two negative side effects are created. The first is heavier political involvement; the second will be considered in the next point
A great deal of the BIS success has happened because of its limited and homogeneous membership. However, the Bank has successfully in involving non-member sovereign states, regions and other groups, without sacrificing the capability to make decisions or to complex bargains. The Forum risks are creating a much larger and more heterogeneous group and with the consequences that agreements will be more hard and decision-making more cumbersome.
The BIS must continue as a forum for central bank and regulatory cooperation, and be officially recognized as the designated agency for the determination of regulatory standards. Given these criteria, competition between home and host states, together with private decisions of risk-taking market participants, will then determine the result.
The Bank retains a mysterious aura which is much less known than the IMF and the World Bank. If the Bank wants to expand the quantity and quality of disclosure of its activities, it can both improve the image of the BIS and the interest of its shareholders.
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