BIS birthday blues: uneasy times as the Bank for International Settlements turns 75.

• Author: Engelen, Klaus C.
• Position: Bank for International Settlements - Company Profile

Central bankers--in contrast with finance ministers and finance officials--have a reputation for working behind a veil of secrecy. Therefore it is not surprising that for decades the Bank for International Settlements in Basel--"a central bankers' bank" and reclusive meeting place for those who pull the levers of global finance--has been shrouded in mystery. Such reclusiveness no longer works in a world where the BIS stands center stage in the efforts to reform the global financial architecture and where increasing transparency and disclosure is required as an alternative to more regulation of largely deregulated markets.

The seventy-fifth anniversary of the Bank--officially celebrated at the Bank's annual general meeting in Basel in June of this year--is a case in point.

Looking back at three-quarters of a century in central bank cooperation provided a fitting opportunity for the BIS leaders to demonstrate that central bankers are learning to open up and be more responsive to a skeptical public and to the financial community at large.

As host of this summer's birthday party, BIS General Manager Malcolm D. Knight and his chairman of the Board of Governors, Dutch central bank Governor Nout Wellink, not only acted to please the delegates from central banks, financial institutions, and guests from the international banking and financial communities. By allowing the first-ever public exhibition on the premises of the BIS Tower, they also gave a broader public--more than six thousand visitors--a chance to get a firsthand look at the inner workings of the central banker's bank and its historical roots. Presented in the exhibition were the glorious and also the not-so-glorious phases of the institution, including the darker sides of the bank's despicable dealings with the Nazis during World War II. The role and history of the BIS is presented in a fifty-page booklet called "this is the biz."

Half a century of the activities of the BIS are covered in a 729-page volume by Gianni Toniolo, a professor from Italy, and Piet Clement, the BIS archivist, on Central Bank Cooperation at the Bank for International Settlements, 1930-1973 (Cambridge University Press, 2005). And as part of the seventy-fifth birthday agenda, an academic conference on the "Past and future of central bank cooperation" was held in July, attended by central banker legends such as Paul Volcker, Alexandre Lamfalussy, and Jacques de Larosiere, and top academics such as Barry Eichengreen, Richard Cooper, Harold James, and Charles Goodhart.

For Knight, organizing the historic birthday events in the middle of his first term and presenting further impressive progress in the transformation "from a predominantly European organization into a truly global institution servicing central banks around the world" was a welcome occasion to heal bad feelings originating from an election process that some saw as an Anglo-Saxon takeover of a European bastion.

A GOOD START FOR THE NEW BIS GENERAL MANAGER

Some BIS staffers had different reasons for not spreading the welcome mat for Knight, a twenty-four-year International Monetary Fund veteran who--in his short stint at the Bank of Canada--made a name for himself in one area especially: reducing staff and cutting costs. However, what Knight presented to the BIS anniversary gathering was a further gradual expansion--not the cost-cutting drive some had feared. By keeping the staff of the BIS--from some fifty different countries--at about 550, Knight didn't shake up the Basel towers as predicted. By appointing German economist Peter Dittus to the job of Secretary General--a position vacated by another German, Gunter D. Baer--and by placing Gunter Pleines, a former Bundesbanker, to head the banking department, Knight helped to improve the strained relations with Germany and the Deutsche Bundesbank.

Without a doubt, since its founding as a predominantly European organization in 1930, the BIS has developed into a truly global central banker's bank in ways that have made it into an important pillar of today's world financial system. In the financial crises of the past two decades, the BIS emerged as an important short-term lender in multilateral emergency assistance operations in cooperation with the IMF and other central banks and national monetary authorities. This happened in 1982 (under the BIS leadership of Fritz Retailer as president and Gunther Schleiminger as director general), when major debtor countries including Mexico and Brazil defaulted and the survival of the global banking and financial system was threatened. After the financial and banking crises of the 1990s, the G7 finance ministers and central bank governors embarked on a major effort to reform and strengthen the international financial architecture. As it turned out, this meant more mandates for the BIS--to serve as a global forum for training and for cooperation between financial market supervisors and regulators, and as a place where new international banking rules such as Basel II could be negotiated.

Thus, at a time of globalization and dramatic change, this venerable financial institution offers some lessons. One is that central bankers are able to change while sticking together to preserve their independence from governments and finance ministers. The other is that sometimes this change comes at a high price in terms of traditions, credibility, and shifts in influence and power.

A GLOBAL BIS FOLLOWING ITS NEW MASTERS

This explains why not all of the central bankers celebrating BIS's seventy-fifth birthday this summer were happy. Among some European central bankers, there was a feeling of resignation and loss in watching what used to be a European power center in economic and monetary research gliding into the American-dominated mainstream, where an almighty U.S. Federal Reserve Board in close collaboration with the U.S. Treasury pulls the strings. For them, the fact that the "Basel Tower" is no...