Overview - "Tower of Basel" is the first investigative history of the world s most secretive global financial institution.
Few, if any, of those enjoying their haute cuisine and grand cru wines— some of the best Switzerland can offer—would be recognized by passers-by, but they include a good number of the most powerful people in the world. In early 2013, when this book went to press, King, who is due to step down as governor of the Bank of England in June 2013, chaired the ECC. The governors of all sixty BIS member banks then enjoy a buffet lunch in the eighteenth-floor dining room.
King takes a very different approach than his predecessor, Jean-Claude Trichet, the former president of the European Central Bank, in chairing the Global Economy Meeting. The governors’ conclaves have played a crucial role in determining the world’s response to the global financial crisis. The BIS management works hard to ensure that the atmosphere is friendly and clubbable throughout the weekend, and it seems they succeed.
All the governors present at the two-day gathering are assured of total confidentiality, discretion, and the highest levels of security. The BIS has the right to communicate in code and to send and receive correspondence in bags covered by the same protection as embassies, meaning they cannot be opened.The BIS is exempt from Swiss taxes.
The bank’s management has tried to plan for every eventuality so that the Swiss police need never be called. Nowadays the countries represented at the Global Economy Meetings together account for around four-fifths of global gross domestic product (GDP)— most of the produced wealth of the world—according to the BIS’s own statistics.
The founder of the technocrats’ cabal was Per Jacobssen, the Swedish economist who served as the BIS’s economic adviser from 1931 to 1956. WHEN I EXPLAINED to friends and acquaintances that I was writing a book about the Bank for International Settlements, the usual response was a puzzled look, followed by a question: “The bank for what?” My interlocutors were intelligent people, who follow current affairs.
FOR THE FIRST forty-seven years of its existence, from 1930 to 1977, the BIS was based in a former hotel, near the Basel central railway station. The BIS is a unique institution: an international organization, an extremely profitable bank and a research institute founded, and protected, by international treaties.
The BIS also helps to supervise commercial banks, although it has no legal powers over them.
The reality is that we have moved beyond recession into a deep structural crisis, one fueled by the banks’ greed and rapacity, which threatens all of our financial security. The BIS sits at the apex of an international financial system that is falling apart at the seams, but its officials argue that it does not have the power to act as an international financial regulator. The BIS is now the world’s thirtieth-largest holder of gold reserves, with 119 metric tons—more than Qatar, Brazil, or Canada. Considering the BIS’s pivotal role in the transnational economy, its low profile is remarkable. As the world’s economy lurches from crisis to crisis, financial institutions are scrutinized as never before. What Happens When You Hand Over Your Gold To The Bank Of England For "Safekeeping" - ZeroHedge. The ECC, which used to be known as the G-10 governors’ meeting, is the most influential of the BIS’s numerous gatherings, open only to a small, select group of central bankers from advanced economies. Trichet, according to one former central banker, was notably Gallic in his style: a stickler for protocol who called the central bankers to speak in order of importance, starting with the governors of the Federal Reserve, the Bank of England, and the Bundesbank, and then progressing down the hierarchy. The bank arranges a fleet of limousines to pick up the governors at Zurich airport and bring them to Basel. The contrast between the Federal Open Markets Committee at  the US Federal Reserve, and the Sunday evening G-10 governors’ dinners was notable, recalled Laurence Meyer, who served as a member of the Board of Governors of the Federal Reserve from 1996 until 2002. The meetings take place on several floors that are usually used only when the governors are in attendance. Its employees do not have to pay income tax on their salaries, which are usually generous, designed to compete with the private sector. The BIS headquarters has high-tech sprinkler systems with multiple back-ups, in-house medical facilities, and its own bomb shelter in the event of a terrorist attack or armed conflagration. The minutes, agenda, and actual attendance list of the Global Economy Meeting or the ECC are not released in any form. Their salaries, airplane tickets, hotel bills, and lucrative pensions when they retire are paid out of the public purse. Central bankers now “seem more powerful than politicians,” wrote The Economist newspaper, “holding the destiny of the global economy in their hands.” How did this happen? The bank’s archives are open and researchers may consult most documents that are more than thirty years old.
It was ostensibly set up as part of the Young Plan to administer German reparations payments for the First World War. But the need for the BIS to keep functioning, to keep the new channels of transnational finance open, was about the only thing all sides agreed on. The bank’s entrance was tucked away by a chocolate shop, and only a small notice confirmed that the narrow doorway opened into the BIS. The BIS is accountable to its customers and shareholders—the central banks—but also guides their operations.
The Basel Committee on Banking Supervision, based at the BIS, regulates commercial banks’ capital and liquidity requirements. It survived the first global depression, the end of reparations payments and the gold standard (two of its main reasons for existence), the rise of Nazism, the Second World War, the Bretton Woods Accord, the Cold War, the financial crises of the 1980s and 1990s, the birth of the IMF and World Bank, and the end of Communism.
As well as the Global Economy Meetings, the BIS hosts four of the most important international committees dealing with global banking: the Basel Committee on Banking Supervision, the Committee on the Global Financial System, the Committee on Payment and Settlement Systems, and the Irving Fisher Committee, which deals with central banking statistics. Back in 1930 a New York Times reporter noted that the culture of secrecy at the BIS was so strong that he was not permitted to look inside the boardroom, even after the directors had left.
They have come to Basel to attend the Economic Consultative Committee (ECC) of the Bank for International Settlements (BIS), which is the bank for central banks.


The ECC makes recommendations on the membership and organization of the three BIS committees that deal with the global financial system, payments systems, and international markets. There King presides over the central bank governors of the thirty countries judged the most important to the global economy.
King, in contrast, adopts a more thematic and egalitarian approach: throwing open the meetings for discussion and inviting contributions from all present.
It is helpful to be able to meet other number ones and say, ‘This is my problem, how do you deal with it?’” King continued. Separate breakfasts, lunches, and dinners are organized for the governors of national banks who oversee different types and sizes of national economies, so no one feels excluded.
The chairman of the Federal Reserve did not always represent the bank at the Basel meetings, so Meyer occasionally attended. The governors are provided with a dedicated office and the necessary support and secretarial staff.
The general man- ager’s salary in 2011 was 763,930 Swiss francs, while head of departments were paid 587,640 per annum, plus generous allowances.
This is because no official minutes are taken, although the bankers sometimes scribble their own notes.
Central bankers like to view themselves as the high priests of finance, as technocrats overseeing arcane monetary rituals and a financial liturgy understood only by a small, self-selecting elite.
Eight countries pledged to manipulate the gold market to keep the price at around thirty-five dollars per ounce, in line with the provisions of the Bretton Woods Accord that governed the post–World War II international financial system.
The BIS, the world’s most secretive global financial institution, can claim much of the credit. Enormously influential, well connected, and highly regarded by his peers, Jacobssen wrote the first BIS annual reports, which were—and remain—essential reading throughout the world’s treasuries. The bank’s key architects were Montagu Norman, who was the governor of the Bank of England, and Hjalmar Schacht, the president of the Reichsbank who described the BIS as “my” bank.
Basel was the perfect location, as it is perched on the northern edge of Switzerland and sits al- most on the French and German borders. The international stage, contacts, banking networks, and legitimacy the BIS provided, first to the Reichsbank and then to its successor banks, has helped ensure the continuity of immensely powerful financial and economic interests from the Nazi era to the present day. The bank’s managers believed that those who needed to know where the BIS was would find it, and the rest of the world certainly did not need to know.
The main tasks of a central bank, the BIS argues, are to control the flow of credit and the volume of currency in circulation, which will ensure a stable business climate, and to keep exchange rates within manageable bands to ensure the value of a currency and so smooth international trade and capital movements. It requires banks to have a minimum capital of eight percent of risk-weighted assets when lending, meaning that if a bank has risk-weighted assets of $100 million it must maintain at least $8 million capital. The Bundesbank and the European Central Bank, two of the most powerful members of the BIS, have driven the mania for austerity that has already forced one European country, Greece, to the edge, aided by the venality and corruption of the country’s ruling class. From the first agreements in the late 1940s on multilateral payments to the establishment of the Europe Central Bank in 1998, the BIS has been at the heart of the European integration project, providing technical expertise and the financial mechanisms for currency harmonization. The bank also hosts three independent organizations: two groups dealing with insurance and the Financial Stability Board (FSB).
The board of directors is responsible for admitting central banks judged to “make a substantial contribution to international monetary cooperation and to the Bank’s activities.” China, India, Russia, and Saudi Arabia joined only in 1996.
Yet somehow, apart from brief mentions on the financial pages, the BIS has largely managed to avoid critical scrutiny. The committee also prepares proposals for the Global Economy Meeting and guides its agenda. In addition to those who were present at the Sunday evening dinner, Monday’s meeting will include representatives from, for example, Indonesia, Poland, South Africa, Spain, and Turkey. We had to work out what was going on, what instruments do we use when interest rates are close to zero, how do we communicate policy.
Sometimes there will be a brief press conference or bland statement afterwards but never anything detailed. The central bankers’ discussions at the BIS, the information that they share, the policies that are evaluated, the opinions that are exchanged, and the subsequent decisions that are taken, are profoundly political.
Although the London Gold Pool no longer exists, its successor is the BIS Markets Committee, which meets every other month on the occasion of the governors’ meetings to discuss trends in the financial markets. From its first day of existence, the BIS has dedicated itself to furthering the interests of central banks and building the new architecture of transnational finance.
The bank’s website includes all its annual reports, which are downloadable, as well as numerous policy papers produced by the bank’s highly regarded research department. This was strange, as the BIS is the most important bank in the world and predates both the IMF and the World Bank.
The BIS’s founding members were the central banks of Britain, France, Germany, Italy, Belgium, and a consortium of Japanese banks. During the 1930s, the BIS was the central meeting place for a cabal of central bankers, dominated by Norman and Schacht. This is crucial, especially in a globalized economy, where markets react in microseconds and perceptions of economic stability and value are almost as important as reality itself. During the 1950s, it managed the European Payments Union, which internationalized the continent’s payment system. The FSB, which coordinates national financial authorities and regulatory policies, is already being spoken of as the fourth pillar of the global financial system, after the BIS, the IMF and the commercial banks. Journalists are not allowed inside the headquarters while the Global Economy Meeting is underway. Some of those present bring a colleague with them, but the aides rarely speak during this most confidential of conclaves. Jaime Caruana, a former governor of the Bank of Spain, the BIS’s general manager, joins them. Governors from fifteen smaller countries, such as Hungary, Israel, and New Zealand are allowed to sit in as observers, but do not usually speak.


The superb quality of the food and wine made for an easy camaraderie, said Peter Akos Bod, a former governor of the National Bank of Hungary. Founded by an international treaty, and further protected by the 1987 Headquarters Agreement with the Swiss government, the BIS enjoys similar protections to those granted to the headquarters of the United Nations, the International Monetary Fund (IMF) and diplomatic embassies.
Senior managers enjoy a special status, similar to that of diplomats, while carrying out their duties in Switzerland, which means their bags cannot be searched (unless there is evidence of a blatant criminal act), and their papers are inviolable. Central bankers, whose independence is constitutionally protected, control monetary policy in the developed world. In doing so, it has spawned a new class of close-knit global technocrats whose members glide between highly-paid positions at the BIS, the IMF, and central and commercial banks. He argued relentlessly against inflation, excessive government spending, and state intervention in the economy. The BIS publishes detailed accounts of the securities and derivatives markets, and international banking statistics. For decades it has stood at the center of a global network of money, power, and covert global influence.
Shares were also offered to the Federal Reserve, but the United States, suspicious of anything that might infringe on its national sovereignty, refused its allocation. The BIS hosted the Governors’ Committee of European Economic Community central bankers, set up in 1964, which coordinated trans-European monetary policy. Estonia, Latvia, Lithuania, Macedonia, Slovenia, and Slovakia (total population 16.2 million) have been admitted, while Pakistan (population 169 million) has not. The meeting closes, the aides leave, and those remaining retire for dinner in the dining room on the eighteenth floor, rightly confident that the food and the wine will be superb. Governors from the third tier of member banks, such as Macedonia and Slovakia, are not allowed to attend. They very rarely referred to statements by other Committee members and there was almost never an exchange between two members or an ongoing discussion about the outlook or policy options. The central bank governors traveling to Basel for the bimonthly meetings enjoy the same status while in Switzerland.
But these are largely compilations and analyses of information already in the public domain. The New York Times described Schacht, widely acknowledged as the genius behind the resurgent German economy, as “The Iron-Willed Pilot of Nazi Finance.” During the war, the BIS became a de-facto arm of the Reichsbank, accepting looted Nazi gold and carrying out foreign exchange deals for Nazi Germany.
Board meetings were suspended, but relations between the BIS staff of the belligerent nations remained cordial, professional, and productive.
From Oslo to Athens, the far right is resurgent, fed in part by soaring poverty and unemployment. During the 1970s, the BIS ran the “Snake,” the mechanism by which European currencies were held in exchange rate bands. All bank officials are immune under Swiss law, for life, for all the acts carried out during the discharge of their duties. The details of the bank’s own core activities, including much of its banking operations for its customers, central banks, and international organizations, remain secret. During the 1980s the BIS hosted the Delors Committee, whose report in 1988 laid out the path to European Monetary Union and the adoption of a single currency. In Africa only Algeria and South Africa are members—Nigeria, which has the continent’s second-largest economy, has not been admitted. The Occupy Wall Street movement, the anti-globalizers, the social network protesters have ignored the BIS. The consequences of his mix of economic liberalism, price obsession, and dismantling of national sovereignty play out nightly in the European news bulletins on our television screens.
The Global Economy Meetings and the other crucial financial gatherings that take place at Basel, such as the Markets Committee, remain closed to outsiders.
You may decide on ninety-five volts, but it would not work.” In theory, sensible housekeeping and mutual cooperation, overseen by the BIS, will keep the global financial system functioning smoothly. The BIS midwifed the European Monetary Institute (EMI), the precursor of the European Central Bank.
The European currency is threatened with breakdown, while those with money seek safe haven in Swiss francs or gold. The EMI’s president was Alexandre Lamfalussy, one of the world’s most influential economists, known as the “Father of the euro.” Before joining the EMI in 1994, Lamfalussy had worked at the BIS for seventeen years, first as economic adviser, then as the bank’s general manager.
There are no demonstrators gathered outside the BIS’s headquarters, no protestors camped out in the nearby park, no lively reception committees for the world’s central bankers. The atmosphere is multi-national and cosmopolitan, albeit very Swiss, emphasizing the bank’s hierarchy.
The bank’s opacity, lack of accountability, and ever-increasing influence raises profound questions— not just about monetary policy but transparency, accountability, and how power is exercised in our democracies. The young, the talented, and the mobile are again fleeing their home countries for new lives abroad.
Like many of those working for the UN or the IMF, some of the staff of the BIS, especially senior management, are driven by a sense of mission, that they are working for a higher, even celestial purpose and so are immune from normal considerations of accountability and transparency. Paul Hechler, the assistant general manager, was a member of the Nazi party and signed his correspondence “Heil Hitler.” Rafaelle Pilotti, the secretary general, was Italian. The powerful forces of international capital that brought the BIS into being, and which granted the bank its power and influence, are again triumphant.



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