by Catherine Bosley and Alessandro Speciale
Martin, Carlos M Rodriguez, Zoe Schneeweiss, Jan
Dahinten, and Donal Griffin
BIS hosts committees
that hash out global financial
But researchers say
rate-cutting central bankers
may be wrong...
The BIS is
arguably the most powerful group of central bankers
in the world, who collectively dominate the entire
rightly calls the BIS a 'Bastion of Global
I think the
world had better get a clue as to what this means
before it's too late to do anything about it.
Welcome to the
Elite Private Club of the World's Central Bankers
There's a changing of the guard at the Bank for International
the little-known but influential organization that sits at the heart
of the world's financial system.
Agustin Carstens, the former head of Mexico's central bank,
will succeed Jaime Caruana as general manager on Friday.
He's taking charge of an
institution that stands out, in an age of increasing transparency
and growing disillusionment with elites, as a bastion of global
Photographer: Simon Dawson/Bloomberg
The BIS headquarters towers over Basel like a 70-meter stack of
copper coins, serving as a clubhouse for the world's central bankers
and financial rule makers.
The likes of Mario
Draghi, Janet Yellen and Mark Carney routinely
hold confidential gatherings there with colleagues from around the
"Maybe if it didn't
exist you wouldn't invent it now, but it plays an important role
in the central banking world," said Charlie Bean, the former
deputy governor of the Bank of England who
co-authored a report
on the BIS's research last year.
"It's the glue that
helps keep the fraternity together."
That hasn't stopped the
BIS, which is owned by central banks and was founded in 1930, from
challenging the economic orthodoxy of its own members.
Photographer: Alex Kraus/Bloomberg
By 2003, William White,
then economic adviser, and colleague Claudio Borio were
pushing for preemptive monetary policy tightening to avoid dangerous
asset bubbles, a contrarian view that looked prescient during the
It's kept beating that drum even as central bankers in the U.S.,
Europe and Japan slashed interest rates to record lows and launched
unprecedented bond-buying programs to fend off deflation.
Borio, now head of the
monetary and economic department at the BIS, argued in a September
speech that central bankers may be underestimating the "generally
of globalization and technology on
inflation, and should rethink their response to deflationary trends.
He called out Larry Summers, the former U.S. Treasury
Secretary and a proponent of the "secular stagnation" theory, who
argues weak U.S. growth and inflation result from a persistent
shortfall in demand.
Summers, in response to questions, described the BIS as,
"an important source
of thinking on issues relating to financial stability and
economic performance," while adding that he frequently disagrees
with their conclusions.
He's not alone in
questioning the BIS's stance.
A review of the bank's
publications co-authored by Bean and published in 2016 found the
organization "doing a lot right" on the research front, but
expressed reservations about the BIS,
to support the 'house view'."
Joining the Debate
Caruana, whose tenure began during the dark days of the
crisis in April 2009, defended the BIS.
"You may agree with
what we say or not, but I think there is a value to introducing
these elements in the debate," he said last week, referring to
the bank's preference for taking a medium-term, global
perspective and highlighting financial stability risks.
Photographer: Simon Dawson/Bloomberg
Research aside, the BIS has grown in prominence in the years of
monetary policy experimentation and banking regulation that followed
While some central banks
made efforts to open up as their increasing powers drew scrutiny
from voters and governments,
in Basel they've rowed back.
president of Germany's Bundesbank and chairman of the BIS's board of
directors, said sometimes secrecy is necessary.
on domestic monetary policy require a nuanced understanding of
international developments," Weidmann said.
"The privacy of the
meetings facilitates a frank and open exchange of views.''
The organization hosts the Financial Stability Board (FSB) and the
Basel Committee on Banking Supervision (BCBS), which meet at the
bank to hash out the rules that govern the international financial
There's also the
Global Economy Meeting and its sister body, the Economic
Consultative Committee (ECC), dubbed "the world's most exclusive club"
by Adam LeBor, the author of
a book on the BIS.
These latter two groups convene once every two months, on a Sunday,
for formal sessions followed by a dinner on a top floor of the BIS
tower, with 360-degree views of Basel and the mountains.
They seldom open
themselves to scrutiny from the press and the public.
The clubby and shrouded nature of the organization and the
committees it hosts contrasts with efforts at greater transparency
The ECB bowed to public pressure in
2015 and began publishing the minutes of its meetings, while
the Federal Reserve started holding
quarterly press conferences in 2011.
As for the BIS, it has scrapped the press conference that used to
accompany the publication of its annual report, while the Global
Economy Meeting discontinued press briefings following its
Transcripts or minutes of
the meetings held in Basel aren't made available, and actions are
relayed through press statements, if at all.
That approach doesn't sit well with everyone.
"You don't know what
were the discussions in the room, or who got bullied into what,"
said Sharon Bowles, the former chair of the Economic and
Monetary Affairs Committee of the European Parliament.
"You get a fait
accompli at the end."
The Bank for International Settlements
Photographer: Gianluca Colla/Bloomberg
Caruana insisted there's a lot of communication from the bank
through papers and reports, and that improvements have been made in
transparency and accountability.
What's more, rules set by
the Basel Committee must be enacted by national legislatures, making
"subject to all the
checks and balances," he added.
Eye on Bitcoin
Carstens, 59, is a long-standing member of the global financial
He earned a doctorate in
economics from the University of Chicago and served as finance
minister before taking up his role at the Bank of Mexico in 2010.
In his new job, he said
he'll focus on the BIS's traditional role of facilitating
communication between central banks, while keeping a skeptical eye
"An area where the
BIS will devote a lot of resources is to virtual assets, which
traditionally are called cryptocurrencies, but we don't believe
that they are currencies," Carstens said.
Yet there's little sign
the institution will raise the curtain on the secretive proceedings
it hosts any time soon.
"There's a sense of
exclusivity among the governors," said Stefan Gerlach, who
worked there on two occasions between 1992 and 2007 and later
served as deputy governor of Ireland's central bank.
"They like to be in
Basel and talk among colleagues."