BIS and the Basel Accord: Looking Back at History

The Bank for International Settlements (BIS) was officially inaugurated in Rome on February 27, 1930 (Toniolo, Central bank cooperation at the bank for international settlements, 1930–1973, Cambridge University Press, 2005), with signing the agreements by seven nations (Belgium, France, Germany, Italy, Japan, the UK and Switzerland) and now sixty-two central banks are members of the BIS (BIS, 2019a). The core objectives of the establishment of the BIS were to manage reparation payments required to be made by Germany under the Treaty of Versailles following World War I (BIS, 2019b; Seabrooke, New Political Economy 11:141–149, 2006). Other reasons for the establishment of this institution include the dominance of the dollar that surpassed sterling as a source of trade credit during and after World War I (WW I), which created the necessity for acceptance of bills in dollars for European countries (Eichengreen and Flandreau, Open Economic Review 23:57–87, 2011). On the other hand, Basel Accord first initiated by the BIS in response to the several chaos observed in the international banking arena in 1980s. The chapter comprehensively discusses those issues of BIS and Basel Accords from historical grounds. The structure of the chapter is as follows. Section 2.2 provides a summary of the historical background of the establishment of the BIS and its role on bringing financial stability in the Western European market. Section 2.3 discusses the establishment of BCBS by BIS, turmoil of global financial industry in the 1980s and initiation of the Basel Accord by the BIS. Section 2.4 highlights the role of capital in Basel Accord and key reasons for reforms in the Basel Accords. Section 2.5 presents concluding remarks.