Tower of Basel

1. The Bank for International Settlements (BIS) was founded by central bankers seeking independence from political control.

The Bank is completely removed from any governmental or political control.

A bankers' dream. Conceived primarily by Montagu Norman of the Bank of England and Hjalmar Schacht of the German Reichsbank, the BIS was established in 1930 ostensibly to manage German World War I reparations payments under the Young Plan. However, its true purpose, enshrined in its statutes, was to foster cooperation among central banks and facilitate international financial operations, free from the interference of politicians and the public eye. This vision was the culmination of decades of central bankers' aspirations for their own powerful, independent institution.

Beyond reparations. While the Young Plan provided the political cover, the central bankers had more ambitious goals. They envisioned a global financial system coordinated by technocrats, ensuring stability and growth through shared knowledge and mutual trust. The BIS was designed to be self-financing, deriving revenue from its banking services for central banks, ensuring its perpetual independence from national budgets and political pressures.

A unique legal status. The Hague Convention of 1930 granted the BIS unprecedented legal privileges, making its property and assets immune from expropriation, seizure, or other measures, even in times of war. This extraordinary status, championed by Norman and Schacht, ensured the bank's operations could continue regardless of geopolitical conflicts, laying the groundwork for its controversial wartime activities and enduring opacity.

2. The BIS became a crucial, legally untouchable hub for transnational finance, even facilitating ties with Nazi Germany.

The fact that the reparation question has been delegated to a banking institution naturally turns this bank into a political institution, even if this is officially denied.

Undermining reparations. From its inception, German officials, like Karl Blessing, saw the BIS not just as a manager of reparations but as a tool to dismantle them. Blessing's strategy involved using German positions within the bank to sow discord and highlight the "utopian objectives" of the Young Plan, demonstrating an early understanding that the BIS, despite claims of neutrality, was inherently political. This approach contributed to the eventual cancellation of German reparations in 1932.

A network of influence. The BIS quickly became a meeting place for central bankers and financiers, fostering relationships that transcended national borders. Key figures like Montagu Norman and Hjalmar Schacht maintained close personal ties, while American bankers like Gates McGarrah and the Dulles brothers built extensive networks with German counterparts. These connections, often facilitated by law firms like Sullivan & Cromwell and banks like J. P. Morgan and J. Henry Schröder, ensured the flow of capital into Germany throughout the 1920s and into the Nazi era.

Legitimizing the Reichsbank. Despite the Nazi regime's state-sponsored financial chicanery, theft, and appropriation of Jewish businesses, the Reichsbank, under Schacht and later Funk, remained a central pillar of the global financial system, largely thanks to the legitimacy provided by its membership and participation in the BIS. The bank's insistence on formal procedures and "neutrality" meant it often overlooked the criminal origins of the funds it handled, a policy that would have devastating consequences.

3. During World War II, the BIS maintained operations, accepted looted gold, and served as a back channel between belligerents.

The Bank for International Settlements is the bank which sanctions the most notorious outrage of this generation—the rape of Czechoslovakia.

Business as usual. Despite the outbreak of war, the BIS directors agreed the bank must remain active to assist with postwar financial reconstruction. Under American president Thomas McKittrick, the BIS adopted a policy of "neutrality," which in practice meant continuing to conduct foreign exchange deals with the Reichsbank and accepting gold payments, even when it was clear the gold was looted from occupied countries like Czechoslovakia and Belgium, or even concentration camp victims.

An authorized plunder. The transfer of Czechoslovak gold held at the Bank of England in a BIS account to the Reichsbank's BIS account, despite clear signs of duress, highlighted the bank's rigid formalism and Montagu Norman's priority of protecting the BIS's independence over national interests. This decision, and the subsequent acceptance of gold melted down and re-stamped at the Prussian Mint, turned the BIS into a de facto arm of the Reichsbank, facilitating Nazi plunder.

A secret channel. The BIS also served as a vital back channel for communication between Allied and Axis financial and intelligence figures. McKittrick regularly met with Allen Dulles, the American intelligence chief in Switzerland, providing economic intelligence. Simultaneously, McKittrick and BIS economic adviser Per Jacobssen maintained contact with Reichsbank officials like Emil Puhl, passing information and discussing postwar economic plans, demonstrating the complex, often morally ambiguous, role the bank played during the conflict.

4. Post-war, the BIS survived liquidation attempts and became central to European economic reconstruction and integration.

The BIS, its property and assets and all deposits and other funds entrusted to it shall be immune in time of peace and in time of war from any measure such as expropriation, requisition, seizure, confiscation, prohibition or restriction of gold or currency export or import, and any other similar measures.

A fight for survival. Despite its controversial wartime record and calls for its liquidation at the 1944 Bretton Woods conference by figures like Henry Morgenthau and Harry Dexter White, the BIS survived. Its defenders, including sections of the US State Department, Wall Street, and the Bank of England, argued for its continued existence, citing its unique legal status, technical expertise, and potential role in postwar reconstruction. The Bretton Woods resolution to dissolve the bank was ultimately non-binding and faded away.

Reintegration and resurgence. The BIS quickly embedded itself in the new postwar financial architecture. It hosted the World Bank's European mission and managed its first non-dollar bond sale. Crucially, the BIS was appointed agent for the European Payments Union (EPU), a key mechanism for facilitating multilateral trade and payments among European nations receiving Marshall Plan aid. This role cemented the BIS's position at the heart of the European integration project, providing essential technical and financial services.

A new era of cooperation. The BIS became the central meeting place for European central bank governors, hosting committees that coordinated monetary policy and laid the groundwork for future monetary union. Figures like Jelle Zijlstra, the BIS president, and Per Jacobssen, the economic adviser, championed European federalism and free-market principles. The bank's ability to provide a confidential forum for discussion and coordination proved invaluable in navigating the financial complexities of the Cold War and the transition to currency convertibility.

5. Former Nazi bankers and industrialists were reintegrated into powerful positions, often with Allied support, influencing the new German economy.

What a Blessing we have a Blessing.

Continuity of elites. Despite the stated goals of de-Nazification and dismantling cartels, many former Nazi bankers and industrialists, essential to the functioning of the German economy, were quickly reintegrated into powerful positions in postwar West Germany. Figures like Hermann Abs of Deutsche Bank and Karl Blessing, a former Reichsbank director and desk-murderer at Kontinental-Öl, avoided significant punishment and returned to lead major financial institutions.

Allied complicity. This reintegration was often facilitated by Allied officials who prioritized economic stability and the rebuilding of Germany as a bulwark against Communism over justice. Allen Dulles, the former OSS chief, actively worked to identify and promote German businessmen and financiers for leadership roles, even those with questionable wartime records, seeing them as necessary for the new German administration and economy.

Rewriting history. Many of these individuals, including Blessing, successfully airbrushed their Nazi pasts, presenting themselves as technocrats or even members of the resistance. Blessing, who had actively participated in the Nazi economic machine and attended Himmler's meetings, became president of the Bundesbank and a respected figure at the BIS, highlighting the extent to which the past was overlooked in the pursuit of postwar economic goals.

6. The BIS played a pivotal, often hidden, role in the technical and financial architecture leading to the Euro.

It was my officials that prepared the meetings in Basel of a project that was primarily European.

The Euro's birthplace. While the political impetus for European monetary union came from figures like Jean Monnet and Jacques Delors, the technical and financial groundwork was largely laid at the BIS. The bank hosted the Committee of Governors of European Economic Community Central Banks from 1964, providing the secretariat and a confidential forum for coordinating monetary policy and discussing exchange rate mechanisms like the "Snake in the Tunnel."

Delors Committee's home. The crucial Committee for the Study of Economic and Monetary Union (the Delors Committee), which drafted the plan for the single currency, met at the BIS headquarters in Basel. BIS staff, particularly Alexandre Lamfalussy and his team, played a central role in preparing meetings, drafting reports, and providing the intellectual and technical expertise that shaped the Euro's design.

A technocratic project. The Euro project, like the BIS itself, was characterized by a focus on technical solutions and a deliberate effort to minimize political interference in monetary policy. The Delors Report called for a European System of Central Banks (ESCB) that would be completely independent of national governments and European authorities, a principle deeply rooted in the BIS's founding ethos of central bank autonomy.

7. The modern BIS is a global, indispensable hub for central bankers and financial regulation, yet remains highly secretive and unaccountable.

The BIS has been a very important meeting point for central bankers during the crisis, and the rationale for its existence has expanded.

Global expansion. After the Euro's launch and the departure of the EMI, the BIS successfully reinvented itself as a truly global institution. The Federal Reserve finally took up its shares in 1994, followed by major emerging economies like China, India, and Brazil in 1996. The BIS expanded its membership and influence, becoming the primary forum for central bankers worldwide to discuss monetary and financial stability.

Regulatory powerhouse. The BIS hosts key committees that shape global financial regulation, including the Basel Committee on Banking Supervision, which sets capital requirements for commercial banks, and the Financial Stability Board (FSB), which coordinates international regulatory policies. These committees, composed of central bankers and regulators, wield immense influence over the global financial system, making the BIS an indispensable hub for financial governance.

Enduring opacity. Despite its critical role and public interest mandate, the BIS maintains a high degree of secrecy. Minutes, agendas, and attendance lists for key meetings, such as the Global Economy Meeting and the Economic Consultative Committee, are not released. This lack of transparency and accountability, protected by its international treaty status, remains a significant point of criticism, contrasting with the increasing demands for openness in the financial sector.

8. The Eurozone crisis highlights the inherent flaws in a monetary union without fiscal unity, a contradiction present from the Euro's BIS-influenced design.

As we have learned from years of experience with crises in both emerging market and advanced economies, the choice between austerity and growth is a false one.

A flawed design. The Eurozone, a monetary union of diverse economies without a corresponding fiscal union, contained inherent contradictions from its inception. While the ECB, modeled on the Bundesbank and influenced by BIS principles, prioritized price stability, national governments retained control over spending and taxation, leading to significant imbalances and a lack of coordinated response mechanisms during crises.

Austerity vs. reality. The ECB's strict mandate for low inflation has often led to demands for austerity measures in member states, particularly during the recent crisis. However, critics argue that this approach, while consistent with the BIS's historical emphasis on fiscal discipline, has exacerbated recessions and unemployment, demonstrating a disconnect between theoretical monetary policy and real-world economic consequences.

Unresolved tensions. The crisis has exposed the deep-seated tensions within the Eurozone, rooted in differing national economic cultures and priorities. Despite the technocratic vision of a unified economic space, the lack of political and fiscal integration continues to challenge the stability of the single currency, raising questions about the long-term viability of a project heavily influenced by the BIS's focus on monetary, rather than holistic economic, coordination.

9. The BIS's legal immunities, a legacy of its founding treaty, now face challenges as the bank becomes a refuge for sovereign assets.

The BIS has a serious conflict of interest: it is playing the interests of one national depositor against the interests of many others.

Immunity tested. The BIS's extraordinary legal immunities, designed to protect its operations from political interference, are now being challenged in new ways. The case of Argentina, which has deposited a significant portion of its foreign reserves at the BIS to shield them from creditors following a sovereign debt default, highlights how the bank's protected status can be used to circumvent national legal systems and international debt resolution processes.

A double-edged sword. While the BIS argues that its immunities are necessary to fulfill its mission as a settlement hub and to handle sensitive transactions like the repatriation of looted assets, critics contend that they also allow the bank to act as a safe haven for countries seeking to avoid their financial obligations. This raises questions about the bank's ethical stance and its claim to operate in the "public interest."

Future challenges. The Argentine case sets a potentially unsettling precedent, suggesting that other countries facing default might also seek refuge at the BIS. This could lead to increased legal and political pressure on the bank and its member states, potentially eroding the perception of its moral authority and challenging the very foundations of its privileged status in an era demanding greater transparency and accountability from financial institutions.

Last updated: May 15, 2025