What is the Bank for International Settlements (BIS)?
The Bank for International Settlements, or BIS for short, is a special bank that works with all the central banks around the world. Central banks are the main banks in each country that control things like how much money there is and how banks work. You can think of central banks as the “boss banks” in each country.
The BIS helps these “boss banks” work together and talk to each other. It gives them a place to meet up and share ideas. The BIS also does research on how money and banks work around the world. Then it uses what it learns to come up with rules and guides that help keep banks and money working smoothly everywhere.
How the BIS got started
The BIS first got going way back in 1930. That was after the first big war that involved lots of countries. In that war, some countries lost and had to pay money to the countries that won. The BIS was made to help move this money from the losing countries to the winning countries.
But after the second big war between lots of countries, another group called the International Monetary Fund, or IMF, took over a bunch of the jobs that the BIS used to do. The IMF started helping countries swap money with each other and sorting out money problems between countries.
What the BIS does now
So if the IMF is doing all this stuff with money between countries now, what does the BIS do these days? Mostly, the BIS thinks really hard about how to make sure banks have enough money saved up to handle any troubles that might happen. It’s kind of like how your parents probably tell you to save some of your allowance in case you need it later.
The BIS looks at all the ways banks might lose money, like if people don’t pay back their loans, or if the price of things the bank buys changes really fast, or if somebody at the bank makes a big mistake. The BIS calls these “risks.” There’s the risk that people won’t pay back loans, the risk that prices will change in a bad way, and the risk that bank workers will mess things up.
Coming up with rules for risks
The BIS comes up with rules and ideas for how much extra money banks should save to cover each of these risks. It’s a lot of math and planning.
For the risk of people not paying back loans, the BIS came up with something called “credit risk” rules. It’s basically a big guide for banks on how much extra money to save depending on who they lend money to. If a bank lends to somebody who looks like they might have trouble paying it back, the bank needs to save more extra money, just in case.
Then there’s the “market risk” rules. These tell banks how much extra money to have on hand in case the stuff they own loses value really fast. Like if a bank owns a bunch of cars thinking they can sell them for a lot of money, but then suddenly nobody wants to buy cars, the bank could lose a ton of money. The market risk rules help banks prepare for those kinds of situations.
Finally, there are the “operational risk” rules. These are about all the mistakes and problems that can happen inside a bank. Maybe a bank worker accidentally sends a bunch of money to the wrong place, or maybe a computer breaks and loses track of who owes what. The BIS rules help banks save extra money to fix problems like that.
Sharing the rules with the world
After the BIS comes up with these rules, it shares them with central banks all over the world. The central banks can then make their country’s banks follow the rules. This helps make sure all the banks in the world are working in a similar way and have enough backup money.
The BIS also holds training sessions and workshops to help central bankers understand all these rules and ideas. It’s a bit like a school for central bankers, teaching them how to keep their countries’ banks and money working well.
A few other things about the BIS
The BIS is based in a city in Switzerland called Basel. A lot of people just call it the “Basel Bank” because of that. But it also has a couple of offices in Hong Kong and Mexico City to help it work with central banks all over the world.
Even though the BIS works with central banks from tons of countries, it’s actually pretty small. It only has about 600 people working for it. But those people spend a lot of time thinking about big, important ideas that affect all the money and banks in the world.
One funny thing about the BIS is that it’s not really controlled by any one country. It’s what’s called a “supranational” organization. That means it’s kind of above countries, working with all of them, but not owned by or listening to any one of them in particular.
