In Basel, an institution largely unknown to the general public regularly brings together those responsible for the world’s major monetary systems. Yet the Bank for International Settlements sets no policy rate, does not lend to governments in crisis and does not command any central bank. Its influence rests on something more discreet: cooperation, standards and consensus-building among monetary authorities.

Within the international financial architecture, some institutions exercise their power in plain sight. The International Monetary Fund intervenes when countries face balance-of-payments crises. The World Bank finances development programmes. Major central banks change interest rates, and their decisions immediately move financial markets.

The Bank for International Settlements, or BIS, occupies a different position.

Based in Basel, Switzerland, it is sometimes described as the “central bank of central banks.” The phrase is appealing, but imperfect. The BIS controls neither the US Federal Reserve nor the European Central Bank nor the People’s Bank of China. It has no global monetary authority and cannot impose interest-rate policy on sovereign states.

Its influence operates through a different mechanism: it is one of the principal places where central banks cooperate, exchange information, develop common standards and attempt to build collective responses to risks affecting the global financial system.

Considerable institutional power, but largely invisible.

An institution older than Bretton Woods

The BIS predates both the IMF and the World Bank. Established in 1930, it is the world’s oldest international financial organisation still in operation.

Its creation was directly connected to the financial disorders left by the First World War. Its original mission included facilitating German reparation payments under the Young Plan and organising financial relations among central banks.

That original function soon became obsolete. The Great Depression, the collapse of the interwar international monetary system and then the Second World War radically transformed the environment in which the BIS had been created.

Its very existence was called into question.

At the Bretton Woods Conference in 1944, which laid the foundations for the IMF and the International Bank for Reconstruction and Development — later the central component of the World Bank Group — a resolution called for the liquidation of the BIS.

It was never implemented.

The institution survived and gradually found a new purpose: facilitating cooperation among central banks in a world where national financial systems were becoming increasingly interconnected.

That ability to adapt largely explains its longevity.

The central bankers’ club

The BIS today has 63 central bank and monetary authority members, representing economies that account for the overwhelming majority of global GDP.

It provides these institutions with a framework for cooperation that differs significantly from the major intergovernmental economic organisations.

At the IMF, countries are represented within an institutional structure in which voting power is largely determined by quotas. At the World Bank, governments similarly occupy the central position.

In Basel, central banks themselves form the core of the system.

Governors and senior monetary officials meet regularly. Some of these meetings allow relatively confidential discussions about inflation, interest rates, financial stability, markets, international capital flows and structural transformations of the monetary system.

This discretion does not necessarily imply secret decision-making. It also reflects the particular nature of central-bank cooperation: independent or relatively autonomous institutions need to be able to compare assessments without turning every technical exchange into a public diplomatic negotiation.

The BIS therefore operates partly as an infrastructure of trust between monetary institutions.

It really is a bank

Its name is not merely historical.

The BIS also conducts banking activities for central banks and other international institutions. It can manage reserves, conduct certain financial transactions, provide services related to gold and foreign exchange, and offer various investment instruments.

It does not, however, operate like a conventional commercial bank.

Individuals and companies cannot hold accounts with it. Its banking activities are essentially designed for monetary authorities and international institutions.

This gives the BIS a remarkable characteristic: it is not merely a forum producing research and hosting meetings. It also participates directly in certain financial operations within the central banking system.

It therefore operates simultaneously in analysis, coordination and the operational infrastructure of international monetary affairs.

Basel I, Basel II, Basel III

The BIS’s global influence becomes particularly visible in banking regulation.

The Basel Committee on Banking Supervision is hosted by the BIS. Created in 1974 by the central bank governors of the Group of Ten following disruptions in international banking, it has become one of the principal producers of global prudential standards.

The Basel frameworks emerged from this process.

Basel I, published in 1988, established a major international framework for bank capital requirements.

Basel II, published in 2004, developed a considerably more sophisticated approach to risk, structured around minimum capital requirements, supervisory review and market discipline.

Then came the global financial crisis of 2007–2009.

The collapse or severe weakening of numerous financial institutions demonstrated that regulatory capital alone was not sufficient. Leverage, the quality of capital, liquidity and dependence on short-term funding became central concerns.

Basel III subsequently strengthened capital requirements, introduced a leverage ratio and international liquidity standards, and more broadly sought to increase the banking system’s ability to absorb financial and economic shocks.

The final components of these reforms have progressively been transposed into different jurisdictions, although implementation schedules and specific rules have not been perfectly uniform.

This reveals an essential characteristic of the Basel system: the Committee has no global legislature capable of directly imposing its rules on the world’s banks.

Its standards must be incorporated into national or regional regulation.

Yet they structure a large part of international banking regulation.

How a voluntary standard becomes almost universal

The mechanism is one of the most interesting aspects of contemporary financial power.

Standards developed in Basel generally do not constitute international law directly applicable to financial institutions. States remain sovereign, and national authorities retain their regulatory powers.

But a major internationally active bank cannot operate efficiently in a world where definitions of capital, risk and liquidity are completely incompatible across jurisdictions.

Supervisors themselves need a common language.

So do markets.

International standards therefore establish a reference point. A jurisdiction can diverge from them, adapt their implementation or delay certain provisions, but that divergence becomes visible and may have to be justified.

This is a particular form of normative power.

The BIS and the bodies it hosts do not directly govern banks. They help define the frameworks through which governments, supervisors, financial institutions and investors understand financial stability.

The distinction is fundamental.

Far more than the Basel Committee

Reducing the BIS to banking regulation would nevertheless be misleading.

It hosts or supports several structures that are central to international financial cooperation.

The Committee on the Global Financial System analyses financial markets and risks that could threaten their stability. The Committee on Payments and Market Infrastructures works on the payment, clearing and settlement systems that allow global finance to function every day.

The BIS also hosts the Financial Stability Board, an international body established in its current form in 2009 to promote global financial stability by coordinating the work of national authorities and international standard-setting bodies.

An entire institutional ecosystem has therefore developed around the BIS.

It deals with issues that can appear highly technical: capital requirements, clearing houses, margins, market infrastructures, systemic risks and cross-border payments.

In reality, these issues help determine how resilient the financial system will be when the next crisis arrives.

Basel’s monetary laboratory

The BIS also plays an intellectual role.

Its economists publish research on inflation, debt, financial cycles, international markets, banking, exchange rates, monetary policy and systemic risks.

Ideas developed within this environment have contributed to debates over the limitations of monetary policies focused exclusively on price stability, the importance of financial cycles and the dangers associated with excessive debt accumulation.

The BIS has also become an important centre for examining the technological transformation of money.

Its Innovation Hub, launched in 2019, works with central banks on central bank digital currencies, cross-border payments, tokenisation, financial infrastructure and other technologies that could transform the monetary system.

The question is no longer simply how existing banks should be regulated.

It is also what money itself will become.

Cooperation does not eliminate power

Presenting the BIS as a purely technical environment would nevertheless be naïve.

Central banks represent economies whose financial weight, currencies and institutional capabilities are profoundly unequal.

The Federal Reserve controls the issuer of the world’s principal reserve currency. The ECB conducts monetary policy for a vast monetary union. The People’s Bank of China operates at the heart of the world’s second-largest economy. Central banks in emerging economies frequently have to manage the consequences of decisions taken elsewhere: capital movements, dollar appreciation, external financing costs and exchange-rate volatility.

International monetary cooperation therefore does not eliminate asymmetries.

It attempts to manage them.

The BIS provides a space where institutions can exchange assessments and search for common standards, but it does not transform a hierarchical monetary system into an egalitarian one.

The structure of global financial power continues to depend on the size of economies, the depth of their markets, institutional credibility and, above all, the international role of their currencies.

An institution without sovereignty

The BIS ultimately provides a useful illustration of a form of power characteristic of global finance.

It possesses almost none of the traditional attributes of power.

No economic territory to administer. No taxpayers. No currency imposed on a population. No global legislative authority. No ability to order a sovereign central bank to change its interest rates.

Yet the discussions organised around it, the research it produces and the standards developed within its institutional environment can affect thousands of financial institutions and, indirectly, the entire global economy.

Its influence rests less on coercion than on coordination.

Less on sovereignty than on standardisation.

Less on spectacular decisions than on the gradual construction of a common language.

The central bank of central banks?

The expression remains useful, provided its limitations are understood.

The BIS is not a global central bank.

It does not sit at the top of a pyramid in which national central banks occupy subordinate levels. The Federal Reserve, the ECB, the Bank of Japan and the People’s Bank of China do not take instructions from Basel.

The reality is more subtle.

The BIS is where a significant part of the global central banking system meets, reflects, cooperates and develops common standards. It provides financial services to institutions that manage the world’s monetary reserves. It hosts several bodies that are critical to international financial stability. And it helps central banks prepare for future transformations in money and payments.

It is precisely because it does not formally govern the system that the BIS provides such a revealing perspective on how that system actually works.

In the global economy, power does not always take the form of an institution capable of issuing orders.

Sometimes, it consists of defining the rules around which everyone else eventually organises.

Main sources

  • Bank for International Settlements (BIS) — mission, governance, central bank membership, history, banking activities, research and international monetary cooperation.
  • Basel Committee on Banking Supervision (BCBS) — Basel I, Basel II and Basel III frameworks, prudential standards and implementation.
  • Committee on Payments and Market Infrastructures (CPMI) — financial infrastructure, payment, clearing and settlement systems.
  • Financial Stability Board (FSB) — international architecture for financial stability monitoring and coordination.
  • BIS Innovation Hub — central bank digital currencies, tokenisation, payments and emerging monetary infrastructure.
  • International Monetary Fund (IMF) — international monetary architecture and cooperation among international financial institutions.