Tags: LeBor | BIS | Germany | Basel

The View from the Tower of Basel

By    |   Monday, 15 July 2013 12:54 PM

Adam LeBor of The Economist has written a book titled Tower of Basel: The Shadowy History of the Secret Bank that Runs the World on the history, functions and outlook for the Bank for International Settlements (BIS), sometimes referred to by the name of the city where it is located, Basel, Switzerland.

LeBor was interviewed on C-SPAN's BookTv by Michelle Wucker, president of the World Policy Institute, which seeks to engage with emerging challenges, thinkers and solutions.

LeBor, who writes out of Budapest, explained that the idea for this book grew out of a chapter on BIS he included in an earlier book Hitler's Secret Bankers. He wanted to explain the pivotal role the BIS, which he called "the most important bank you've never heard of," plays in global finance.

The BIS was established as a central bank for the leading central banks of the world as an independent, unaccountable entity, originally for the purpose of managing the collection of World War I reparations from Germany after these had been reduced in 1924 but Germany defaulted in 1929. A committee headed by Owen Young, then-CEO of General Electric and founder of RCA and NBC, formulated an installment plan for the collection of the remaining reparations. The BIS would serve as the collection agent, independent of any government, empowered to provide technical advice and banking services to member central banks. The founding countries were Germany, Belgium, Great Britain, France, Italy, Japan, the United States and Switzerland.

The first central bankers who led the BIS were Baron Montagu Norman, who served as Governor of the Bank of England from 1920 to 1944, and his close personal friend Hjalmar Schacht, who was president of the Reichsbank under the Weimar Republic and a leader in the effort to cancel the reparations and restore Germany's prominence in world affairs.

LeBor did not mention that Norman was Jewish, but this adds a strong dose of irony to his relationship with Schacht, as the latter supported the appointment of Hitler as Germany's chancellor. However, Schacht was deposed as head of the Reichsbank after he informed Hitler that Germany had run out of gold reserves. Schacht later joined the opposition to Hitler, was arrested in the aftermath of the plot against Hitler and was sent to several concentration camps, ultimately to Dachau. He was acquitted at Nuremberg and restored to his banking career after the war.

At the height of World War II, the BIS, the Bank of England and the Swiss National Bank facilitated the looting of gold from various countries and the transfer of gold to the account of the Reichsbank, activities that enabled Germany to continue to finance the war. This gold included so-called "blood gold" seized from victims of Nazi persecution. Thus the BIS acquired a taint that it has never fully shed.

Again ironically, the Bretton Woods conference resolved to abolish the BIS, but it was never executed, because the BIS' instinct for survival and its ability to evolve to meet the changing needs of central banks has thwarted any move to dissolve the bank, with the help of John Maynard Keynes, the head of the British delegation at Bretton Woods.

Perhaps the most vulnerable period for the BIS was the immediate postwar period, as a new monetary order was adopted at the Bretton Woods conference in 1944. FDR's Treasury Secretary proposed harsh punishment against Germany, and his deputy, Harry Dexter White, who devised the Bretton Woods plan and was suspected of being and later confirmed as a Soviet agent, opposed the BIS.

By then the Germans had their team firmly in place. The German Nazi Emil Puhl bragged that the BIS was the only foreign branch of the Reichsbank. Hermann Schmitz, the Nazi who headed IG Farben, the German chemical company that ran its own concentration camp and produced the chemicals used in mass executions, served on the board of the BIS. He was sentenced to four years by the Nuremberg tribunal and after the war joined the board of Deutsche Bank. Other Nuremberg convicts on the BIS were Puhl and Walter Funk. The board also included the Baron von Schroeder, owner of the bank that held the deposits of the Gestapo.

The president of the BIS was Thomas McKittrick, who LeBor indentified as an agent of Allen Dulles, head of the Office of Strategic Services (OSS) and its successor, the CIA. LeBor found confirmation in OSS archives that McKittrick told the German industrialists that if they cooperated with postwar planning, their profits would be guaranteed, and the American State Department was aware of the ties between the BIS and the Germans.

LeBor credits the BIS with continuing to evolve in recent decades by serving as a meeting place for central bankers as they have managed repeated financial crises and by administering the various iterations of capital accords since the mid-1970s.

The BIS is firmly entrenched as a member of the "troika" with the European Central Bank and the International Monetary Fund that is managing the ongoing crisis in the eurozone.

The BIS enables central bankers to meet every two months in an inspiring setting that overlooks both Germany and France, and they are pampered with food, wine, staff and office space, all without ever having to suffer the indignity of meeting with the press and communicating the results of their deliberations.

LeBor flatly predicts that the BIS will become more transparent over time, because he has faith that it will continue to evolve in order to preserve its role at the center of global financial policy.

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Adam LeBor of The Economist has written a book titled Tower of Basel: The Shadowy History of the Secret Bank that Runs the World on the history, functions and outlook for the Bank for International Settlements (BIS).
Monday, 15 July 2013 12:54 PM
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