Bank Failures, Systemic Risk, and Bank Regulation
by George G. Kaufman
John F. Smith Professor of Finance and Economics
Loyola University Chicago
consultant, Federal Reserve Bank of Chicago
opening passage:
Bank (depository institutions) failures are widely perceived to have greater adverse effects on the economy and thus are considered more important than the failure of other types of business firms. In part, bank failures are viewed to be more damaging than other failures because of a fear that they may spread in domino fashion throughout the banking system, felling solvent as well as insolvent banks. [1] Thus, the failure of an individual bank introduces the possibility of systemwide failures or systemic risk. This perception is widespread. [2] It appears to exist in almost every country at almost every point in time regardless of the existing economic or political structure. As a result, bank failures have been and continue to be a major public policy concern in all countries and a major reason that banks are regulated more rigorously than other firms. [3]
Unfortunately, whether bank failures are or are not in fact more important than other failures, and I will argue in this paper that they are not, the prudential regulations imposed to prevent or mitigate the impact of such failures are frequently inefficient and counterproductive. Mark Flannery (1995) comes to a similar conclusion. The regulators have often increased both the probability of bank failure and the costs of such failures. In the process, the regulations have tended to socialize the costs of failure by shifting them from private depositors of the failed banks to general taxpayers.
In addition, the imposition of prudential regulations have identified banking as "unique," and at times have involved potential government financial assistance. This has often made it easier for governments to justify imposing other regulations that have primarily social and political objectives and are often in conflict with the objectives of the prudential regulations, e.g., credit allocation schemes. [4] However, the bulk of the evidence suggests that the greatest danger of systemic risk comes not from the damage that may be imposed on the economy from a series of bank failures, but from the damage that is imposed on the economy from the adverse effects of poor public policies adopted to prevent systemic risk. As a result, it can be argued that the poor performance of banking experienced in almost all countries in the last two decades reflects primarily regulatory or government failures, rather than market failures. Prevention of reoccurrences of the recent banking problems requires better developed and more incentive compatible and market assisted prudential regulation and reduced nonprudential regulations.
[...]
from http://www.bis.org/about/prof-gh.htm:
June 1998
•INTRODUCTION
•WHY THE BIS WAS FOUNDED IN 1930
•THE LEGAL STATUS OF THE BIS, ITS ISSUED SHARE CAPITAL, AND ITS SHAREHOLDING CENTRAL BANKS
•ADMINISTRATION OF THE BIS
•THE BIS AS A FORUM FOR INTERNATIONAL MONETARY AND FINANCIAL COOPERATION
•THE BIS AS A CENTRE FOR MONETARY AND ECONOMIC RESEARCH
•THE BIS AS A BANK
•AGENCY AND TRUSTEE FUNCTIONS OF THE BIS
•THE BIS IN BRIEF
The Bank For International Settlements:
Profile Of An International Organisation
1. INTRODUCTION
Since its creation at the Hague Conference in January 1930, the Bank for International Settlements (the BIS) has always been a central banking institution which is unique at the international level. It is owned and controlled by central banks and it provides a number of highly-specialised services to central banks and, through them, to the international financial system more generally. At the present time the BIS is actively deepening its relationships with central banks outside its traditional focus in the industrialised world.
The Bank's predominant tasks are summed up most succinctly in part of Article 3 of its original Statutes. They are "to promote the co-operation of central banks and to provide additional facilities for international financial operations . . ." One of the major aims of greater international central bank cooperation has always been to foster international financial stability. Nowadays, with rapidly integrating financial markets in the world, such cooperation is even more essential. The BIS is thus an important forum for international monetary and financial cooperation between central bankers and, increasingly, other regulators and supervisors. At the same time the BIS is a bank, but one whose depositors are limited to central banks and international financial institutions. A significant portion of the world's foreign exchange reserves are held on deposit with the BIS. The BIS also acts as Agent or Trustee in connection with various international financial agreements. In all these roles -- as a central bankers' meeting place and bank, and as Agent or Trustee -- the BIS aims for the highest standards of professionalism and complete confidentiality and discretion.
Since September 1994, the eleven countries from which the members of the Bank's Board of Directors are drawn have been identical with the countries which comprise the Group of Ten, with which the BIS has had a long and close association. The admission to membership in 1996/97 of an additional nine central banks in Asia, Latin America, the Middle East and Europe has ended the previous heavy concentration of BIS shareholding central banks in the industrialised world and eastern Europe.
The Bank has business and other relations with considerably more than its shareholding central banks because some 120 central banks and international financial institutions use the BIS as a bank; it also increasingly invites central bank officials from the emerging market economies to participate in discussions held at the BIS. Furthermore, the central banks or official monetary institutions of all but a few countries throughout the world are regularly represented at the Annual General Meeting of the BIS in June each year.
2. WHY THE BIS WAS FOUNDED IN 1930
The need to create an international organisation such as the BIS had been perceived from the beginning of the century. However, it was not until the adoption of the Young Plan in accordance with the Hague Agreements of 20th January 1930, whose main purpose was the settlement of the problem of German reparations after the First World War, that the necessary steps were taken.
The inter-governmental agreements concluded at the Hague Conference in January 1930 provided for the founding of the BIS by a group of six central banks and a financial institution of the USA and for the granting of a Constituent Charter to the BIS by Switzerland, the country in which it was agreed that the BIS should be established. The new international organisation was destined not only to perform the functions of trustee in the execution of the Young Plan, but also, as already noted, to promote the cooperation of central banks and to provide additional facilities for international financial operations.
The BIS commenced its activities in Basle on 17th May 1930 and is thus the world's oldest international financial organisation. Today Basle has become the traditional international meeting place for many central bank Governors and other officials.
3. THE LEGAL STATUS OF THE BIS, ITS ISSUED SHARE CAPITAL, AND ITS SHAREHOLDING CENTRAL BANKS
In common with many of its founding central banks in 1930, the BIS was given the legal structure of a limited company with an issued share capital. The Hague Agreements nevertheless established the BIS as an international organisation governed by international law with the privileges and immunities necessary for the performance of its functions. The international legal personality of the BIS and the privileges and immunities which it has enjoyed in Switzerland since its foundation were confirmed in the Headquarters Agreement which was concluded by the Bank with the Swiss Federal Council on 10th February 1987. It is apparent from that Agreement that the BIS has a legal status in Switzerland similar to that accorded to the many other international organisations which have been established there since 1930. It should be added that the BIS is subject neither to the Swiss Federal Law concerning Banks and Savings Banks nor to the provisions of Swiss Company Law.
The authorised share capital of the Bank is 1,500 million gold francs, divided into 600,000 shares of equal nominal value (2,500 gold francs per share). At the close of the financial year 517,165 shares were in issue and, in accordance with Article 7 of the Statutes of the BIS, they are paid up to the extent of 25% of their nominal value (625 gold francs per share). The amount of the paid-up capital appearing in the Balance Sheet of the BIS at 31st March 1998 thus stands at 323.2 million gold francs.
The gold franc of the BIS has a gold weight of just over 0.29 of a gramme of fine gold, which is identical with the gold parity of the Swiss franc from the foundation of the BIS in 1930 until September 1936 when, after a number of leading countries had left the gold standard, the gold parity of the Swiss franc was suspended. The BIS employs the gold franc solely as a unit of account for balance-sheet purposes, assets and liabilities in US dollars being converted into gold francs at the fixed rate of US$ 208 per ounce of fine gold (equivalent to 1 gold franc = US$ 1.94) and all other items in currencies being converted into gold francs on the basis of market rates against the US dollar.
When the Bank's initial capital was issued, the subscribing institutions were given the option of taking up the whole of their respective national issues of shares or of arranging for those shares to be subscribed by the public. As a result, part of the Belgian and French issues and the whole of the American issue are not held by the institutions to which they were originally allocated. In all, some 86% of the Bank's issued share capital is registered in the names of central banks, the remaining 14% being held by private shareholders. While all shares carry equal rights with respect to the annual dividend, private shareholders have no right to attend or vote at General Meetings of the BIS, since all rights of voting and representation are reserved for the central bank of the country in which the relevant national issue of shares was initially subscribed.
At 31st March 1998 forty-five central banks had rights of representation and voting at General Meetings of the BIS. These included all the G-10 central banks -- namely those of
Belgium,
Canada,
France,
Germany,
Italy,
Japan,
the Netherlands,
Sweden,
Switzerland,
the United Kingdom and
the United States of America -- and the central banks of
Australia,
Austria,
Brazil,
Bulgaria,
China,
the Czech Republic,
Denmark,
Estonia,
Finland,
Greece,
Hong Kong,
Hungary,
Iceland,
India,
Ireland,
Korea,
Latvia,
Lithuania,
Mexico,
Norway,
Poland,
Portugal,
Romania,
Russia,
Saudi Arabia,
Singapore,
Slovakia,
South Africa,
Spain and
Turkey, together with the Central Bank of
Bosnia and Herzegovina,
the Croatian National Bank,
the National Bank of the Republic of Macedonia and
the Bank of Slovenia,
which have been issued shares of the Bank pending a comprehensive settlement of all outstanding questions in connection with the legal status of the suspended Yugoslav issue of the Bank's capital.
4. ADMINISTRATION OF THE BIS
The BIS has three administrative bodies: the General Meeting, the Board of Directors and the Management.
The General Meeting is held annually, usually on the second Monday in June.
The Board of Directors comprises the Governors of the central banks of Belgium, France, Germany, Italy and the United Kingdom and the Chairman of the Board of Governors of the US Federal Reserve System, as ex officio members, each of whom appoints another member of the same nationality. The Statutes also provide for the election to the Board of not more than nine Governors of other member central banks. The Governors of the central banks of Canada, Japan, the Netherlands, Sweden and Switzerland are currently elected members of the Board.
The Board of Directors elects a Chairman from among its members and appoints the President of the Bank. Since 1948 the two offices have been vested in one person. They are currently held by Alfons Verplaetse, Governor of the National Bank of Belgium.
The Board of Directors appoints the General Manager, currently Andrew Crockett, and the other members of the Management. The staff of the Bank (including temporary staff) now numbers 463 and is drawn from twenty-nine countries.
5. THE BIS AS A FORUM FOR INTERNATIONAL MONETARY AND FINANCIAL COOPERATION
Meeting place for central bankers
The Bank's offices in Basle are the meeting place for the Governors and other officials not only of the shareholding central banks referred to in Section 3 above but also of the central banks of many other countries throughout the world, including both major industrialised countries and, more recently, countries with emerging market economies. The purpose of these meetings is to achieve a high degree of mutual understanding of monetary and economic questions and to facilitate international cooperation in areas of common interest, in particular as regards the monitoring of and support to the international financial system.
The promotion of international financial stability:
The Role Of The Group Of Ten
The stability of the international monetary and financial systems has long been a central concern of the central bankers meeting at the BIS. For example, the Bank played an important role in both the creation and operation of the various intra-European payments arrangements between 1947 and 1958. Then, during the period between 1960 and 1971, particularly at the times when waves of speculation took place against a number of different currencies, the Basle meetings on many occasions resulted in important initiatives being undertaken by the central banks.
The General Arrangements to Borrow (GAB) of 1962, under which ten member countries of the IMF (together with Switzerland, which was not a member of the Fund at that time) agreed to make resources available to the Fund outside their quotas, led to the countries participating in the GAB being known as the Group of Ten (G-10). As well as making resources available to the IMF under the GAB the G-10 has, since 1963, been a principal forum for discussion of international monetary questions. From the outset, the BIS has been a participant in G-10 meetings, above all because the Governors of the G-10 central banks meet regularly on the occasion of the Basle monthly meetings. It was thus through their contacts at the BIS that between 1961 and 1968 the G-10 central banks coordinated their interventions in the gold markets through the so-called gold pool, which was operated on the basis of directives formulated and issued in Basle by the central bank Governors. Furthermore, the network of swap arrangements between the US monetary authorities and a number of central banks to reinforce confidence in the dollar had its origins in 1962 within the framework of the BIS. The G-10 meetings have, over time, become the pivotal forum in which much wider activities have been set in motion by the G-10 central banks in the pursuit of international financial stability -- for example in the fields of monetary and financial market monitoring and analysis, banking supervision and payment and settlement systems.
It should be noted, however, that the BIS is also -- and increasingly -- a forum for meetings of the Governors and other officials from those central banks throughout the world which make a substantial contribution to international monetary cooperation, irrespective of whether or not those institutions are BIS shareholding central banks.
In the background, the progressive globalisation of financial markets and the continuous process of financial innovation over the last two decades have also added to the need for deeper understanding of the resulting systemic implications and for cooperation among those central banks most affected. As early as 1971 concern among central banks about the evolution of the Euro-currency markets led to the establishment of a Standing Committee of the Group of Ten central banks which has met periodically in Basle ever since. Circumstances have from time to time prompted the central banks concerned to deal with a series of specific questions, such as the apparent lack of a lender of last resort in the Euro-market, the implications of international debt problems, financial innovation, the evolution of financial market structures and the collection of new statistical information; for example, most recently in the rapidly-growing field of derivatives.
Meeting more regularly -- at the time of the monthly meetings -- the Committee of Experts on Gold and Foreign Exchange also monitors ongoing financial market developments with a view to their implications for central bank policies and operating procedures.
Another important initiative was the agreement of the G-10 Governors in December 1974 to set up a committee to improve collaboration between bank supervisors in the light of the experiences earlier that year in connection with Bankhaus Herstatt in Germany and the Franklin National Bank in New York. The work of the Basle Committee on Banking Supervision, the Secretariat for which is provided by the BIS, encompasses three main areas.
Firstly, the Committee provides a forum for discussion on the handling of specific supervisory problems.
Secondly, it coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide. A report by the Committee on this matter (which has become known as the Basle Concordat) was issued in 1983, and in 1992 the Committee strengthened these arrangements by agreeing on minimum standards for the supervision of international banking groups and their cross-border establishments.
Thirdly, it seeks to enhance standards of supervision, notably in relation to solvency, so as to help strengthen the soundness and stability of international banking. In this respect, it has over the years issued a wide range of papers designed to guide bank supervisors in the establishment of sound supervisory standards. The best known of these is the agreement reached in 1988 to achieve international convergence in the measurement of the adequacy of banks' capital and to establish minimum capital standards. More recently, the Committee has issued the Core Principles for Effective Banking Supervision, which is a comprehensive blueprint for an effective supervisory system, backed up by a three-volume Compendium of guidance documents.
The efficiency and stability of domestic and cross-border payment and settlement systems have also been a key central bank concern. The BIS hosts meetings of, and provides the Secretariat for, the Committee on Payment and Settlement Systems and its various working parties. This Committee reviews developments in payment and settlement systems, including those for securities and foreign exchange market transactions. It also monitors developments relating to cross-border and multilateral netting schemes following the publication in 1990 of the report of the ad hoc Committee on Interbank Netting Schemes.
The need to strengthen financial systems worldwide has led to increased demand for assistance in implementing sound policies in all areas bearing on financial system stability. To help respond to these demands, and to improve the effectiveness with which training is planned, coordinated and delivered, the BIS in a joint initiative with the Basle Committee on Banking Supervision is establishing an Institute for Financial Stability which is expected to commence its activities some time in the second half of this year.
Secretariat of the International Association of Insurance Supervisors (IAIS)
Since January 1998 the BIS has hosted the Secretariat of the International Association of Insurance Supervisors (IAIS). The IAIS is a relatively new organisation, founded in 1994. Similar to the Basle Committee on banking supervision, but directed at insurance business the members of the IAIS aim to cooperate to ensure improved supervision of the insurance industry, to develop practical standards for supervision of insurance, to provide mutual assistance and to exchange information on their respective experiences in order to promote the development of domestic insurance markets. In 1997 the IAIS issued its first papers: Insurance supervisory principles; guidance on insurance regulation and supervision for emerging market economies; a paper comparable to the above-mentioned "Basle Concordat" of the Basle Committee and a model Memorandum of Understanding (MOU) that can be used by supervisors to improve the exchange of information and to facilitate cooperation with each other.
The Secretariat operates in full independence of the BIS but has its offices at the BIS and enjoys its support in certain technical and administrative areas. The proximity to the Basle Committee and to the other secretariats at the BIS focusing on issues of financial stability facilitates the cooperation and exchange of information which is becoming increasingly necessary as differences between financial institutions and sectors diminish and therefore call for joint supervisory approaches.
Other areas of cooperation between the BIS and central banks
As central bank cooperation has intensified in other parts of the world, either within existing regional political associations or specialised central banking organisations, the BIS has been in touch with most of them, notably in Latin America with CEMLA (Centro de Estudios Monetarios Latinoamericanos), in Asia with EMEAP (Executive Meeting of East Asian and Pacific Central Banks), with SEANZA (Central Banks of South East Asia, New Zealand and Australia), with SEACEN (South East Asian Central Banks), in South Asia with SAARC (South Asian Association for Regional Cooperation), in the Gulf Region with GCC (Gulf Cooperation Council), and in South Africa with SADC (South African Development Community). The BIS contributes to the activities of these organisations as well as conducting seminars together with an increasing number of them.
The BIS performs functions in the field of technical assistance for the central banks of eastern Europe,the former Soviet Union and some Asian economies in transition, and coordinates the technical assistance and training being provided by the central banks of over twenty industrialised countries. That coordination is founded on a database and on regular meetings bringing together officials of the donor and recipient central banks concerned as well as the IMF and other international organisations. The BIS also participates with the EBRD, the IBRD, the IMF and the OECD in a training institution (the Joint Vienna Institute) which they set up in September 1992 in order to offer courses for officials of the central banks and of the economic and financial authorities of the countries whose economies were formerly subject to central planning.
The BIS also regularly organises meetings of central bank economists and other experts on a variety of matters, such as economic and monetary issues of interest to central banks, including, for example, monetary policy techniques and operating procedures and netting arrangements. Meetings of central bank experts also take place on more specialised topics, such as data bank management, security, automation, internal management procedures, the collection of international financial statistics, and specific legal topics of interest to central banks. In recent years, participation has been increasingly extended to representatives from emerging markets, who also attend special meetings at the BIS on topics of particular concern to them.
Economic and monetary cooperation in Europe
From 1964 until the end of 1993 the BIS hosted the Secretariat of the Committee of Governors of the Central Banks of the Member States of the European Economic Community (the Committee of Governors). From 1st June 1973 until the end of 1993 the Secretariat of the Committee of Governors also served the Board of Governors of the European Monetary Co-operation Fund (EMCF) and the Bank acted as EMCF Agent (see Section 8 below). Until they were replaced by the European Monetary Institute (EMI) on 1st January 1994, the Committee of Governors and the EMCF were the Community bodies which provided the institutional framework for monetary cooperation in the European Community.
6. THE BIS AS A CENTRE FOR MONETARY AND ECONOMIC RESEARCH
Apart from the specific tasks performed by the BIS, and by various committees and groups of experts, as described in Section 5 above, the Monetary and Economic Department of the BIS conducts research, particularly into monetary and financial questions, collects and publishes data on international banking and financial market developments, and runs an intra-central bank economic database to which contributing central banks have automated access.
The research work of the BIS tends to focus on questions of direct interest to central banks, and is therefore of an applied nature. The Bank's economic research and analysis find an outlet in the various Economic Papers and Working Papers which are published by the BIS. Much of the work undertaken also serves, directly or indirectly, as an important input to the wide-ranging review of international economic and financial developments in the Bank's Annual Report, the publication for which it is perhaps most widely known among the general public. The BIS also publishes its own research, along with papers submitted by central banks, in its new series of Conference Papers and Policy Papers.
At the request of central banks the BIS also compiles and analyses data on developments in the international banking and securities markets. The data relating to international banking statistics, currently the most extensive part of the data compiled, shed light on the growing international business of banks and on one important component of countries' international indebtedness. The data have also recently been adapted for use in the compilation of more accurate national balance-of-payments statistics. In addition, the Bank has been mandated to build up databases on activity in international debt securities markets, as well as in exchange and over-the-counter traded derivatives. Finally, the Bank maintains a database on the results of the triennial Central Bank Survey of Foreign Exchange Market Activity, which was expanded in 1995 to include comprehensive information on derivatives markets.
Most of the data are regularly published by the BIS in its quarterly "International Banking and Financial Market Developments" which also provides a detailed commentary on market developments. Some of the statistics are published once a year in the Annual Report of the BIS, where one chapter is devoted to international financial market developments. Data concerning the maturity breakdown of banks' external assets are published twice yearly, also accompanied by a commentary. The BIS also contributes data on bank lending to a joint publication with the OECD on external indebtedness. Finally, the BIS publishes the results from the triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in a separate report.
Information about the BIS, together with a growing number of its publications, can now be accessed on the Bank's World Wide Web site (http://www.bis.org).
7. THE BIS AS A BANK
The Balance Sheet of the BIS
At 31st March 1998 the Bank's balance-sheet total stood at 62.5 billion gold francs, with the Bank's published own funds (capital and reserves) at 2.6 billion gold francs. Expressed in US dollars with gold at the then current market price the figures could be put at US$ 124.8 billion and US$ 5.6 billion, respectively.
Banking operations
The Banking Department of the BIS carries out a wide range of banking operations, which arise from its role of providing financial services to assist central banks in the management of their external reserves. At present, around 120 central banks and international financial institutions from all over the world place deposits with the BIS. The total of the currency deposits so placed with the BIS amounted to about US$ 104.9 billion at the end of March 1998, representing around 7% of world foreign exchange reserves.
The substantial size of the Bank's balance-sheet total reflects the importance of the functions of the BIS as banker to central banks. Because a high proportion of the reserve assets which central banks hold in the form of deposits with the BIS needs to be available to them at rather short notice, the Bank's employment of these resources focuses upon maintaining a high degree of liquidity. Most of these funds are placed in the market, mainly in the form of investments with top-quality commercial banks and purchases of short-term government securities. While these operations today constitute the bulk of the Bank's business, it also conducts a range of foreign exchange and gold operations on behalf of its customers.
The guiding principle that must be observed by the BIS in its banking operations is laid down in Article 19 of its Statutes, which states that: "The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned". The Bank is not permitted to make advances to governments or open current accounts in their name.
Investment services for central banks
In recent years the Bank has expanded the investment services it offers to central banks: new BIS-developed instruments enable central banks to manage their liquidity more efficiently, while to help with longer-term reserve management the Bank offers tailor-made portfolio management schemes to central banks.
Central bank facilities and bridging finance
In addition to placing funds in the international markets, the BIS sometimes has occasion to make liquid resources available to central banks. Such facilities usually take the form of secured credits against gold or currency deposits held with the BIS, but on occasion they may be granted on an unsecured basis, for example in the form of a standby credit which a central bank can draw on at very short notice.
A further dimension to the Bank's lending activities was added in 1982 when the debt crisis erupted and was seen as a potential threat to the stability of the international financial system. At the request of the leading central banks, and with their support (in the form of guarantees), the BIS has, since then, helped to provide bridging finance to a number of central banks, mainly in Latin America and eastern Europe, pending the disbursement of credits granted by such international bodies as the IMF or the IBRD, which were conditional on certain undertakings with regard to future economic policy.
8. AGENCY AND TRUSTEE FUNCTIONS OF THE BIS
The BIS assists, in a number of fields, in the execution of international financial agreements as Agent or Trustee.
International loan agreements
In the past, the BIS performed various functions as Trustee, Fiscal Agent or Depositary with regard to a number of international loan agreements, such as the Dawes and Young loans which were issued by the German government in 1924 and in 1930, respectively, and the secured loans which were issued by the European Coal and Steel Community from 1952. Following the reunification of Germany, the Federal Republic has issued a new series of funding bonds concerning arrears of interest under the Dawes and Young loans.
Earlier functions for the EPU, the EMA, the OECD, the EMCF and the EMI
A function which has now lapsed but whose influence survives in various forms of monetary cooperation is that which the BIS fulfilled in the context of the European Payments Union (1950-58) and its forerunners, the multilateral payments agreements of 1947-50. At the end of 1958, after the European currencies had become fully convertible, the European Payments Union was replaced by the European Monetary Agreement (EMA), a multilateral system of settlements, and the Bank assumed responsibility for the execution of all financial operations connected with this Agreement until it was terminated in 1972. It then lent its services as Agent for the application of the OECD Exchange Guarantee Agreement, which was concluded in place of the EMA and continued in force until the end of 1978.
From June 1973 until the end of 1993, the BIS acted as Agent for the European Monetary Co-operation Fund (EMCF). With effect from 1st January 1994 the EMCF was dissolved and, pursuant to the Treaty on European Union which was agreed in Maastricht in December 1991, the tasks previously performed by the EMCF were taken over by the European Monetary Institute (EMI).
Functions concerning the EBA
Since October 1986 the BIS has performed the functions of Agent for the private ECU clearing and settlement system in accordance with the provisions of successive agreements concluded between the Euro Banking Association (EBA), formerly the ECU Banking Association, Paris, and the BIS, the most recent of which was signed and entered into force on 16th September 1996. Fifty-six commercial banks, which have been granted the status of clearing bank by the EBA, were participating in the ECU Clearing and Settlement System at end of May 1998. It is foreseen that a further eleven commercial banks will join the System during the summer of 1998.
Functions as Collateral Agent
In April 1994 the BIS assumed new functions in connection with the rescheduling of Brazilian external debt which had been agreed by Brazil in November 1993. In accordance with two Collateral Pledge Agreements, the BIS acts in the capacity of Collateral Agent to hold and invest collateral for the benefit of the holders of certain US dollar denominated bonds, maturing in either 15 or 30 years, which have been issued by Brazil under the rescheduling arrangements.
The BIS has undertaken similar functions for Peru since March 1997 and for the Côte d'Ivoire since March 1998 in connection with the external debt rescheduling arrangements agreed in November 1996 and May 1997 respectively.
9. THE BIS IN BRIEF
From the foregoing profile of the BIS, the following key fields of activity emerge:
•as a forum for international monetary cooperation, the services offered by the BIS in hosting meetings of central bankers and in providing facilities for various committees, both standing and ad hoc, make an important contribution to international monetary cooperation and mutual understanding
•as a bank for central banks, the BIS plays an important role in providing central banks with a broad range of financial services for managing their external reserves
•as a centre for monetary and economic research, the BIS contributes to a better understanding of international financial markets and the interaction of national monetary policies
•acting as Agent or Trustee, the BIS facilitates the implementation of various international financial agreements.
from http://www.bis.org/about/factsh98.htm:
BANK FOR INTERNATIONAL SETTLEMENTS (BIS)
Bank für Internationalen Zahlungsausgleich (BIZ)
Banque des Règlements Internationaux (BRI)
Banca dei Regolamenti Internazionali (BRI)
* * *
1. Offices
Registered office of the BIS: Centralbahnplatz 2, Basle, Switzerland.
Postal address:CH-4002 BasleTelephone:(+41-61) 280 80 80Cable address:INTERBANK
Telex:962 487 biz chTelefax:(+41-61) 280 91 00 and (+41-61) 280 81 00World Wide Web site:http://www.bis.orgE-mail:EMAILMASTER@bis.org
In July 1998 the BIS will open a Representative Office for Asia and the Pacific in the Hong Kong Special Administrative Region of the People’s Republic of China.
2. Board of Directors
Chairman of the Board of Directors, President of the Bank: Alfons Verplaetse, Brussels.
Vice-Chairman: Lord Kingsdown, London.
Members of the Board:
Urban Bäckström, Stockholm; Vincenzo Desario, Rome; Antonio Fazio, Rome; Edward A.J. George, London; Alan Greenspan, Washington; Hervé Hannoun, Paris; Masaru Hayami, Tokyo; William J. McDonough [Bilderberg '97, '98], New York; Hans Meyer, Zürich; Helmut Schlesinger, Frankfurt a/M; Gordon G. Thiessen, Ottawa; Hans Tietmeyer, Frankfurt a/M; Jean-Claude Trichet [Bilderberg '95], Paris; Nout H.E.M. Wellink, Amsterdam; Philippe Wilmès, Brussels.
Alternates:
Jean-Pierre Patat or Marc-Olivier Strauss-Kahn, Paris; Ian Plenderleith or Clifford Smout, London; Jean-Jacques Rey or Marcia De Wachter, Brussels; Alice M. Rivlin or Edwin M. Truman, Washington; Carlo Santini or Stefano Lo Faso, Rome; Helmut Schieber or Bernd Goos, Frankfurt a.M..
3. Management
Andrew CrockettGeneral Manager [Bilderberg '98]André IcardAssistant General ManagerGunter D. BaerSecretary General, Head of DepartmentMalcolm GillHead of the Banking DepartmentWilliam R. WhiteEconomic Adviser, Head of the Monetary and Economic DepartmentMarten de BoerManager, Accounting, Budgeting and ECU ClearingRenato FilosaManager, Monetary and Economic DepartmentMario GiovanoliGeneral Counsel, ManagerGuy NoppenManager, General SecretariatGünter PleinesDeputy Head of the Banking Department
29th May 1998
from http://www.bis.org/cbanks1.htm:
Central Banks on the World Wide Web
The BIS has been authorised to include web site information for the following central banks. This list will be regularly updated.
(Last update 11th February 1999)
Argentina: Banco Central de la Republica Argentina
Armenia: Central Bank of Armenia
Australia: Reserve Bank of Australia
Austria: Oesterreichische Nationalbank
Bahrain: Bahrain Monetary Agency
Belgium: Nationale Bank van Belgie -- Banque Nationale de Belgique
Benin: Banque Centrale des Etats de l'Afrique de l'Ouest
Bolivia: Banco Central de Bolivia
Bosnia: Central Bank of Bosnia and Herzegovina
Brazil: Banco Central do Brasil
Bulgaria: Bulgarian National Bank
Burkina Faso: Banque Centrale des Etats de l'Afrique de l'Ouest
Canada: Bank of Canada
Chile: Banco Central de Chile
Colombia: Banco de la Republica
Costa Rica: Banco Central de Costa Rica
Côte d'Ivoire: Banque Centrale des Etats de l'Afrique de l'Ouest
Croatia: Croatian National Bank
Cyprus: Central Bank of Cyprus
Czech Rep.: Ceska Narodni Banka
Denmark: Danmarks Nationalbank
Ecuador: Banco Central del Ecuador
El Salvador: The Central Reserve Bank of El Salvador
Estonia: Eesti Pank
European Union: European Central Bank
Finland: Suomen Pankki
France: Banque de France
Germany: Deutsche Bundesbank
Guatemala: Banco de Guatemala
Guinea Bissau: Banque Centrale des Etats de l'Afrique de l'Ouest
Hong Kong: Hong Kong Monetary Authority
Hungary: National Bank of Hungary
Iceland: Central Bank of Iceland
India: Reserve Bank of India
Indonesia: Bank of Indonesia
Israel: Bank of Israel
Italy: Banca d'Italia
Jamaica: Bank of Jamaica
Japan: Bank of Japan
Jordan: Central Bank of Jordan
Korea: Bank of Korea
Latvia: Bank of Latvia
Lebanon: Banque du Liban
Lithuania: Lietuvos Bankas
Luxembourg: Institut Monitaire Luxemburgeois
Mali: Banque Centrale des Etats de l'Afrique de l'Ouest
Mauritius: Bank of Mauritius
Mexico: Banco de Mexico
Moldova: The National Bank of Moldova
Netherlands: De Nederlandsche Bank
New Zealand: Reserve Bank of New ZealandNiger: Banque Centrale des Etats de l'Afrique de l'OuestNorway: Norges Bank
Peru: Banco Central de Reserva del PeruPortugal: Banco de Portugal
Senegal: Banque Centrale des Etats de l'Afrique de l'Ouest
Singapore: Monetary Authority of Singapore
Slovakia: National Bank of Slovakia
Slovenia: Bank of Slovenia
South Africa: The South African Reserve Bank
Spain: Banco de España
Sri Lanka: Central Bank of Sri Lanka
Sweden: Sveriges Riksbank
Switzerland: Schweizerische Nationalbank
Tanzania: Bank of Tanzania
Thailand: Bank of Thailand
Togo: Banque Centrale des Etats de l'Afrique de l'Ouest
Tunisia: Banque Centrale de Tunisie
Turkey: Türkiye Cumhuriyet Merkez Bankasi
United Kingdom: Bank of England
United States: Board of Governors of the Federal Reserve System (Washington)
Federal Reserve Bank of New York
from www.l0pht.com/pub/blackcrwl/patriot/federal_reserve.txt:
[Authored 1990-April:]
B A C K G R O U N D I N F O R M A T I O N
FEDERAL RESERVE SYSTEM
The Federal Reserve System, often called the Fed, is our nation's central bank. Created by Congress in 1913, it became the federal government agency responsible for monetary policy -- influencing the supply and cost of money. The Fed also supervises banking organizations and provides services to financial institutions. These tasks, carried out by the Board of Governors and the twelve regional Federal Reserve Banks, help provide a growing economy with stable prices and a safe and flexible banking system.
BOARD OF GOVERNORS
The Board of Governors, located in Washington, DC, is the Fed's central coordinating body. Its primary function is the formulation of monetary policy, but the Board also has supervisory and regulatory responsibilities over the activities of banking organizations and Federal Reserve Banks.
The Board is comprised of seven members who are appointed by the President and confirmed by the Senate. The full term of a Board member is fourteen years, and the seven terms are arranged so that one expires in every even- numbered year. From among the seven Board members, the President names, subject to Senate confirmation, the Board's chairman and vice chairman to four-year terms.
Current Fed Board MembersTerm Expires Alan Greenspan, ChairmanJanuary 31, 1992Manuel H. Johnson, Vice ChairmanJanuary 31, 2000Wayne D. Angell January 31, 1994Vacant January 31, 1996Edward W. Kelley, Jr. January 31, 1990John P. LaWare January 31, 2002Martha R. Seger January 31, 1998
FEDERAL RESERVE BANKS
To carry out the functions of the Fed, the country has been divided into twelve districts, each served by a Federal Reserve Bank. Some important Reserve Bank services are check clearing, electronic funds transfer, providing currency and coin, examining banks, processing bank holding company applications, lending to financial institutions, and acting as fiscal agent for the U.S. Treasury.
Reserve Banks are federally chartered corporations whose stockholders are their district's national banks and state chartered banks that are members of the Federal Reserve System. Separate nine-member boards of directors govern each of these twelve banks. A Reserve Bank's stockholders elect six of the directors, and the Board of Governors appoint the other three. Directors appoint the Reserve Bank president (the chief executive officer) and the first vice president (the chief administrative officer) to five-year terms, subject to the Brd of Governors' approval.
MONETARY POLICY
The Board of Governors and the reserve banks have responsibility for open market operations -- the Fed's primary monetary policy tool. Through the buying and selling of U.S. Government securities, the Fed influences bank reserves. Other things remaining equal, a purchase of government securities by the Fed adds reserves to the commercial banking system, enabling banks to expand their lending and investing. Conversely, the sale of securities by the Federal Reserve withdraws reserves from the banking system.
Open market operations are the responsibility of the Federal Open Market Committee, often called the FOMC. It is composed of the seven members of the Board of Governors and five of the reserve bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis; the presidents of the other reserve banks serve on a rotating basis. The FOMC, which Congress established in 1935, is required to meet in Washington, DC. at least four times a year. Typically, it meets once every five to eight weeks.
The Board of Governors and the reserve banks also share responsibility for setting the discount rate -- another important monetary policy tool. It is the rate financial institutions pay to borrow from the Fed for temporary, emergency, or seasonal purposes. By raising or lowering the discount rate, the Fed influences the cost and availability of bank reserves. The discount rate is set by the directors of each reserve bank every two weeks, subject to determination and review by the Board of Governors.
OFTEN ASKED QUESTIONS ABOUT THE FED
The unique structure of the Fed often raises three questions:
First, Who owns the Fed? Although Fed member banks own stock in reserve banks, their ownership rights are restricted. If the Federal Reserve Banks were to be liquidated and their assets sold, Fed member banks would only receive back what they paid for their stock. The value of the Fed's stock over and above that would be returned to the U.S. Treasury.
Second, Where does the Fed receive its income? Most of the Fed's earnings come from its portfolio of U.S. Government securities. The interest on them, for example, accounted for most of the Fed's $21.8 billion revenues in 1989. From its revenues the Fed pays its expenses and a 6 percent statutory dividend on its member banks stock. The remainder is returned to the U.S. Treasury. In 1989, for example, the Fed paid $21.6 billion to the U.S. Treasury. Since 1914, the Fed has paid more than $221 billion to the U.S. Treasury.
Third, Since the Fed has considerable discretion in carrying out is responsibilities, to whom is it accountable? To ensure financial accountability, reserve banks are audited by the Board of Governors, which in turn, is audited by a private accounting firm. Also, the General Accounting Office (GAO) can audit selected Fed operations. The Fed's ultimate accountability is to Congress which at any time can amend the Federal Reserve Act. Legislation requires the Fed to report annually on its activities to the Speaker of the House of Representatives, and twice a year to the Banking Committees of Congress on its plans for monetary policy. The Fed also testifies before Congress when requested. April 1990
The Commercial Credit System
'Freedom League', Sept/Oct 1984
When Congress borrows money on the credit of the United States, bonds are thus legislated into existence and deposited as credit entries in Federal Reserve banks. United States bonds, bills and notes constitute money as affirmed by the Supreme Court (Legal Tender Cases, 110 U.S. 421), and this money when deposited with the Fed becomes collateral from whence the Treasury may write checks against the credit thus created in its account (12 USC 391). For example, suppose Congress appropriates an expenditure of $1 billion. To finance the appropriation Congress creates the $1 billion worth of bonds out of thin air and deposits it with the privately owned Federal Reserve System. Upon receiving the bonds, the Fed credits $1 billion to the Treasury's checking account, holding the deposited bonds as collateral. When the United States deposits its bonds with the Federal Reserve System, private credit is extended to the Treasury by the Fed. Under its power to borrow money, Congress is authorized by the Constitution to contract debt, and whenever something is borrowed it must be returned. When Congress spends the contracted private credit, each use of credit is debt which must be returned to the lender or Fed. Since Congress authorizes the expenditure of this private credit, the United States incurs the primary obligation to return the borrowed credit, creating a National Debt which results when credit is not returned. However, if anyone else accepts this private credit and uses it to purchase goods and services, the user voluntarily incurs the obligation requiring him to make a return of income whereby a portion of the income is collected by the IRS and delivered to the Federal Reserve bankers. Actually the federal income tax imparts two separate obligations: the obligation to file a return and the obligation to abide by the Internal Revenue Code. The obligation to make a return of income for using private credit is recognized in law as an irrecusable obligation, which according to 'Bouvier's Law Dictionary' (1914 ed.), is "a term used to indicate a certain class of contractual obligations recognized by the law which are imposed upon a person without his consent and without regard to any act of his own." This is distinguished from a recusable obligation which, according to Bouvier, arises from a voluntary act by which one incurs the obligation imposed by the operation of law. The voluntary use of private credit is the condition precedent which imposes the irrecusable obligation to file a tax return. If private credit is not used or rejected, then the operation of law which imposes the irrecusable obligation lies dormant and cannot apply.
In 'Brushaber v. Union Pacific RR Co.' 240 U.S. 1 (1916) the Supreme Court affirmed that the federal income tax is in the class of indirect taxes, which include duties and excises. The personal income tax arises from a duty -- i.e., charge or fee -- which is voluntarily incurred and subject to the rule of uniformity. A charge is a duty or obligation, binding upon him who enters into it, which may be removed or taken away by a discharge (performance): 'Bouvier', p. 459. Our federal personal income tax is not really a tax in the ordinary sense of the word but rather a burden or obligation which the taxpayer voluntarily assumes, and the burden of the tax falls upon those who voluntarily use private credit. Simply stated the tax imposed is a charge or fee upon the use of private credit where the amount of private credit used measures the pecuniary obligation. The personal income tax provision of the Internal Revenue Code is private law rather than public law. "A private law is one which is confined to particular individuals, associations, or corporations": 50 AmJur 12, p.28. In the instant case the revenue code pertains to taxpayers. A private law can be enforced by a court of competent jurisdiction when statutes for its enforcement are enacted: 20 AmJur 33, pgs. 58, 59. The distinction between public and private acts is not always sharply defined when published statutes are printed in their final form: Case v. Kelly 133 U.S. 21 (1890). Statutes creating corporations are private acts: 20 AmJur 35, p. 60. In this connection, the Federal Reserve Act is private law. Federal Reserve banks derive their existence and corporate power from the Federal Reserve Act: Armano v. Federal Reserve Bank 468 F.Supp 674 (1979). A private act may be published as a public law when the general public is afforded the opportunity of participating in the operation of the private law. The Internal Revenue Code is an example of private law which does not exclude the voluntary participation of the general public. Had the Internal Revenue Code been written as substantive public law, the code would be repugnant to the Constitution, since no one could be compelled to file a return and thereby become a witness against himself. Under the fifty titles listed on the preface page of the United States Code, the Internal Revenue Code (26 USC) is listed as having not been enacted as substantive public law, conceding that the Internal Revenue Code is private law. Bouvier declares that private law "relates to private matters which do not concern the public at large." It is the voluntary use of private credit which imposes upon the user the quasi contractual or implied obligation to make a return of income. In 'Pollock v. Farmer's Loan & Trust Co.' 158 U.S. 601 (1895) the Supreme Court had declared the income tax of 1894 to be repugnant to the Constitution, holding that taxation of rents, wages and salaries must conform to the rule of apportionment. However, when this decision was rendered, there was no privately owned central bank issuing private credit and currency but rather public money in the form of legal tender notes and coins of the United States circulated. Public money is the lawful money of the United States which the Constitution authorizes Congress to issue, conferring a property right, whereas the private credit issued by the Fed is neither money nor property, permitting the user an equitable interest but denying allodial title.
Today, we have two competing monetary systems. The Federal Reserve System with its private credit and currency, and the public money system consisting of legal tender United States notes and coins. One could use the public money system, paying all bills with coins and United States notes (if the notes can be obtained), or one could voluntarily use the private credit system and thereby incur the obligation to make a return of income. Under 26 USC 7609 the IRS has carte blanche authority to summon and investigate bank records for the purpose of determining tax liabilities or discovering unknown taxpayers: 'United States v. Berg' 636 F.2d 203 (1980). If an investigation of bank records discloses an excess of $1000 in deposits in a single year, the IRS may accept this as prima facie evidence that the account holder uses private credit and is therefore a person obligated to make a return of income. Anyone who uses private credit -- e.g., bank accounts, credit cards, mortgages, etc. -- voluntarily plugs himself into the system and obligates himself to file. A taxpayer is allowed to claim a $1000 personal deduction when filing his return. The average taxpayer in the course of a year uses United States coins in vending machines, parking meters, small change, etc., and this public money must be deducted when computing the charge for using private credit.
On June 5, 1933, the day of infamy arrived. Congress on that date enacted House Joint Resolution 192, which provided that the people convert or turn in their gold coins in exchange for Federal Reserve notes. Through the operation of law, H.J.R. 192 took us off the gold standard and placed us on the dollar standard where the dollar could be manipulated by private interests for their self-serving benefit. By this single act the people and their wealth were delivered to the bankers. When gold coinage was thus pulled out of circulation, large denomination Federal Reserve notes were issued to fill the void. As a consequence the public money supply in circulation was greatly diminished, and the debt-laden private credit of the Fed gained supremacy. This action made private individuals who had been previously exempt from federal income taxes now liable for them, since the general public began consuming and using large amounts of private credit. Notice all the case law prior to 1933 which affirms that income is a profit or gain which arises from a government granted privilege. After 1933, however, the case law no longer emphatically declares that income is exclusively corporate profit or that it arises from a privilege. So, what changed? Two years after H.J.R. 192, Congress passed the Social Security Act, which the Supreme Court upheld as a valid act imposing a valid income tax: 'Charles C. Steward Mach. Co. v, Davis' 301 U.S. 548 (1937).
It is no accident that the United States is without a dollar unit coin. In recent years the Eisenhower dollar coin received widespread acceptance, but the Treasury minted them in limited number which encouraged hoarding. This same fate befell the Kennedy half dollars, which circulated as silver sandwiched clads between 1965-1969 and were hoarded for their intrinsic value and not spent. Next came the Susan B. Anthony dollar, an awkward coin which was instantly rejected as planned. The remaining unit is the privately issued Federal Reserve note unit dollar with no viable competitors. Back in 1935 the Fed had persuaded the Treasury to discontinue minting silver dollars because the public preferred them over dollar bills. That the public money system has become awkward, discouraging its use, is no accident. It was planned that way.
A major purpose behind the 16th Amendment was to give Congress authority to enforce private law collections of revenue. Congress had the plenary power to collect income taxes arising from government granted privileges long before the 16th Amendment was ratified, and the amendment was unnecessary, except to give Congress the added power to enforce collections under private law: i.e., income from whatever source. So, the Fed got its amendment and its private income tax, which is a banker's dream but a nightmare for everyone else. Through the combined operation of the Fed and H. J.R. 192, the United States pays exorbitant interest whenever it uses its own money deposited with the Fed, and the people pay outrageous income taxes for the privilege of living and working in their own country, robbed of their wealth and separated from their rights, laboring under a tax system written by a cabal of loan shark bankers and rubber stamped by a spineless Congress.
Congress has the power to abolish the Federal Reserve System and thus destroy the private credit system. However, the people have it within their power to strip the Fed of its powers, rescind private credit and get the bankers to pay off the National Debt should Congress fail to act. The key to all this is 12 USC 411, which declares that Federal Reserve notes shall be redeemed in lawful money at any Federal Reserve bank. Lawful money is defined as all the coins, notes, bills, bonds and securities of the United States: 'Julliard v. Greenman' 110 U.S. 421, 448 (1884); whereas public money is the lawful money declared by Congress as a legal tender for debts (31 USC 5103); 524 F.2d 629 (1974). anyone can present Federal Reserve notes to any Federal Reserve bank and demand redemption in public money -- i.e., legal tender United States notes and coins. A Federal Reserve note is a fixed obligation or evidence of indebtedness which pledges redemption (12 USC 411) in public money to the note holder. The Fed maintains a ready supply of United States notes in hundred dollar denominations for redemption purposes should it be required, and coins are available to satisfy claims for smaller amounts. However, should the general public decide to redeem large amounts of private credit for public money, a financial melt-down within the Fed would quickly occur. The process works like this. Suppose $1000 in Federal Reserve notes are presented for redemption in public money. To raise $1000 in public money the Fed must surrender U.S. Bonds in that amount to the Treasury in exchange for the public money demanded (assuming that the Fed had no public money on hand). In so doing $1000 of the National Debt would be paid off by the Fed and thus cancelled. Can you imagine the result if large amounts of Federal Reserve notes were redeemed on a regular, ongoing basis? Private credit would be withdrawn from circulation and replaced with public money, and with each turning of the screw the Fed would be obliged to pay off more of the National Debt. Should the Fed refuse to redeem its notes in public money, then the fiction that private credit is used voluntarily would become unsustainable. If the use of private credit becomes compulsory, then the obligation to make a return of income is voided. If the Fed is under no obligation to redeem its notes, then no one has an obligation to make a return of income. It is that simple! Federal Reserve notes are not money and cannot be tendered when money is demanded: 105 So. 305 (1925). Moreover, the Ninth Circuit rejected the argument that a $50 Federal Reserve note be redeemed in gold or silver coin after specie coinage had been rescinded but upheld the right of the note holder to redeem his note in current public money (31 USC 392; rev., 5103): 524 F.2d 629 (1974); 12 USC 411.
It would be advantageous to close out all bank accounts, acquire a home safe, settle all debts in cash with public money and use U.S. postal money orders for remittances. Whenever a check is received, present it to the bank of issue and demand cash in public money. This will place banks in a vulnerable position, forcing them to draw off their assets. Through their insatiable greed, bankers have over extended, making banks quite illiquid. Should the people suddenly demand public money for their deposits and for checks received, many banks will collapse and be foreclosed by those demanding public money. Banks by their very nature are citadels of usury and sin, and the most patriotic service one could perform is to obligate bankers to redeem private credit. When the first Federal Reserve note is presented to the Fed for redemption, the process of ousting the private credit system will commence and will not end until the Fed and the banking system nurtured by it collapse. Coins comprise less than five percent of the currency, and current law limits the amount of United States notes in circulation to $300 million (31 USC 5115). The private credit system is exceedingly over extended compared with the supply of public money, and a small minority working in concert can easily collapse the private credit system and oust the Fed by demanding redemption of private credit. If the Fed disappeared tomorrow, income taxes on wages and salaries would vanish with it. Moreover, the States are precluded from taxing United States notes: 4 Wheat. 316. According to Bouvier, public money is the money which Congress can tax for public purposes mandated by the Constitution. Private credit when collected in revenue can fund programs and be spent for purposes not cognizable by the Constitution. We have in effect two competing governments: the United States Government and the Federal Government. The first is the government of the people, whereas the Federal Government is founded upon private law and funded by private credit. What we really have is private government. Federal agencies and activities funded by the private credit system include Social Security, bail out loans to bankers via the IMF, bail out loans to Chrysler, loans to students, FDIC, FBI, supporting the U.N., foreign aid, funding undeclared wars, etc., all of which would be unsustainable if funded by taxes raised pursuant to the Constitution. The personal income tax is not a true tax but rather an obligation or burden which is voluntarily assumed, since revenue is raised through voluntary contributions and can be spent for purposes unknown to the Constitution. Notice how the IRS declares in its publications that everyone is expected to contribute his fair share. True taxes must be spent for public purposes which the Constitution recognizes. Taxation for the purpose of giving or loaning money to private business enterprises and individuals is illegal: 15 AmRep 39; Cooley, 'Prin. Const. Law', ch. IV. Revenue derived from the federal income tax goes into a private slush fund raised from voluntary contributions, and Congress is not restricted by the Constitution when spending or disbursing the proceeds from this private fund. It is incorrect to say that the personal federal income tax is unconstitutional, since the tax code is private law and resides outside the Constitution. The Internal Revenue Code is non-constitutional because it enforces an obligation which is voluntarily incurred through an act of the individual who binds himself. Fighting the Internal Revenue Code on constitutional grounds is wasted energy. The way to bring it all down is to attack the Federal Reserve System and its banking cohorts by demanding that private credit be redeemed, or by convincing Congress to abolish the Fed. Never forget that private credit is funding the destruction of our country.
"The New Federalist"
Gonzalez Rips Fed Megabanks for Usury
by Marcia Merry
[Excerpts]
Washington, June 14 [1993] (EIRNS) -- Representative Henry Gonzalez (D -- Texas), 77, chairman of the House of Representatives Committee on Banking, Finance and Urban Affairs, let fly last week against the Federal Reserve, derivatives speculation, and usury by megabanks.
Representative Gonzalez's speech [delivered on late-night cable television] was a call to arms for citizens and their elected officials to intervene before it's too late [to avert disaster].
Gonzalez slammed the Federal Reserve for being a private monopoly outside the constitutional control of the federal government, and for being guilty of usury. He called the Fed and privileged banks "malefactors of wealth," and explained that he had asked for special orders to speak, because of the "general negligence or lack of information disseminated to our American citizens with respect to the banks' and financial institutions' activities in our country.
In his June 10 speech, Gonzalez observed, "Part of [the problem] is that, particularly among our largest banks, they are not in the banking business any longer, really. They are in the speculative or, what I would say, in the gambling business." Gonzalez remarked that he "would have more confidence in Las Vegas professionals than I would in these [banks]."
On June 8, Gonzalez had described the flood of drug money being laundered by the banks, and the lawless activities of the Federal Reserve -- and also those of the CIA, in particular in cases such as that of BCCI Bank.
Gonzalez stressed how the U.S. taxpayer subsidizes the megabanks. He explained, "... The Federal Reserve Board lends the bank, or the banks can borrow money, at 3%. Maybe now and then even under 3%. With that, they buy U.S. government-guaranteed securities which pay at this point not less than 7% and on average more than that."
"Now that is a subsidy by the taxpayer. They do not want to call it that. But how are the people going to know unless those of us who happen to be in the position to know and evaluate, report?"
Gonzalez did report: "During 1992, the dollar value of loans held by U.S. banks fell by $27 billion... while their holdings of government securities soared."
Gonzalez defined derivatives as "a fancy name for a... contract in which two parties agree that they will bet on the future value of some market activity -- futures -- all the way from some commodity, to such things as the currency futures, which are volatile." He dramatized how highly speculative the electronically conducted trading is, saying, "Even as I am speaking, you will have a trillion or more of these speculative clicks chasing from London to New York to Frankfurt to Paris to Tokyo."
"Is there money out there in these international markets for the procurement of goods, for firing the engines of manufacturing and production? No. It is paper chasing paper."
Gonzalez reported that "the holdings of our principal banks in these derivatives rose from $2.3 trillion in 1986 to $8.3 trillion in 1989, and $15.3 trillion in 1991."
He listed the estimated derivatives trading volume, compared to asset value, of the top seven U.S. banks: Citicorp, Chemical Banking Corp., Chase Manhattan, Bankers Trust, First Chicago, Continental Banking, and Bank of America. He blasted their off-balance-sheet speculative activity, and the way the Federal Deposit Insurance Corp. has covered it up.
Gonzalez did not propose new solutions to the crisis he described; he has already introduced a bill to audit and regulate the Federal Reserve. He warned, "All history shows that no society has been able to endure usury."
Financial Times, 1997-Jan-30,
Gold Global Market Revealed
by Kenneth Gooding
Mining Correspondent
Deals involving about 30 million troy ounces, or 930 tonnes, of gold valued at more than $10 billion are cleared every working day in London, the international settlement centre for gold bullion.
This is the first authoritative indication of the size of the global gold market, and was revealed yesterday by the London Bullion Market Association.
With the blessing of the Bank of England, the association overturned years of tradition and secrecy to provide statistics illustrating the size and depth of the London market.
The volume of gold cleared every DAY in London represented nearly twice the production from South African mines in a YEAR, Mr. Alan Baker, chairman of the association, pointed out.
It was also equivalent to the amount of gold held in the reserves of European Union central banks.
The size of the gold market will surprise many observers, but traders insisted the association's statistics were only part of the picture because matched orders are cleared without appearing in the statistics. Mr. Jeffrey Rhodes, of Standard Bank, London, said the 30m ounces should be "multiplied by three, and possibly five, to give the full scope of the global market".
Mr. Baker said the association would produce average daily clearance figures every month. "They will provide a useful benchmark for comparison and analysis of trends in the volume of the global bullion business," he predicted.
He denied suggestions that the move might drive business away from London by upsetting clients who preferred secrecy. "These figures do not in any way affect the confidentiality of the market. While discretion and integrity will always be bywords in the London bullion market, the LBMA is nevertheless conscious of the general call for greater transparency in markets.
"The statistics demonstrate the prominence of London in the world of bullion, something we have long been aware of but which until now has been difficult to demonstrate with statistics."
LBMA members were divided over the move. One said he was puzzled. "What will people make of it?" Another said the exercise was "futile" because it did not give a complete picture of bullion market activity.
But Standard Bank's Mr. Rhodes suggested the statistics would "become the key indicator in the world of gold, providing the numbers by which the market can be monitored".
Mr. Martin Stokes, vice-chairman of the association, said: "This shows we have a serious market with a lot of depth and deserving of more attention." The statistics showed, for example, that the 300 tonnes of gold sold recently by the Dutch central bank -- a disposal that badly affected bullion market sentiment -- was not a large amount by the market's standards. The association was "making a bid to attract investors' interest".
The association also gave details yesterday about the silver market. Roughly 250 million ounces of silver valued at more than $1 billion are cleared daily in London.
It also published the results of a Bank of England survey of turnover that the 14 market-making members of the LBMA in the London bullion market conducted in May last year. This showed about 7 million ounces of gold, worth nearly $3 billion, was traded daily by these market-makers.
from the World Gold Council, from http://www.gold.org/Ginfos/Gi4mar.htm:
The Gold Markets
Gold from the major producing countries reaches its eventual customer through a number of key markets, South African and CIS output passes mainly through London and Zurich, North American gold is channelled through New York and Toronto, while Australian production goes to Hong Kong, Singapore and Japan.
The principal dealers in the gold markets are bullion houses owned by banks or the banks themselves, thus guaranteeing the necessary confidentiality, security and financing for the handling of such a valuable metal.
London originally became a major market for precious metals in the 17th century. The oldest member of the market, Mocatta and Goldsmid, opened their doors in 1671. Several other members started in the early 19th century. The gold rush to Australia in 1852, followed by the South African gold discoveries in 1886, confirmed London as the main channel through which the gold came for refining and distribution.
The most famous feature of London's gold market is the "fixing" held at N.M. Rothschild's at 10.30 am and 3.00 pm each working day. The fixing began in 1919 and is attended by five members of the market, In recent years several fixing seats have changed hands. The members are the Mocatta Group, (a division of Standard Chartered Bank), N.M. Rothschild, Deutsche Bank Sharps Pixley (since 1993), Montagu Precious Metals (part of Hong Kong Shanghai Banking Corporation) and Republic National Bank of New York (since 1993). At the fixing, the members, linked by telephone to their own trading rooms, balance all their "buy" and "sell" orders. The price at which that balance is achieved is "the fix". Its strength is that a large volume of gold can be bought or sold at a single clearly posted price. The London "fix" is a benchmark for many transactions world-wide, whether for mines, fabricators, or central banks, because it is an undisputed price.
In recent years participants in London's gold trading have increased, leading to the formation in 1987 of the London Bullion Market Association (LBMA). Its members include leading American and European banks. In all there are about 14 "market makers" in the LBMA, together with over 46 ordinary members. Gold traded and held in London is known as "loco London" gold. The London market is also the crossroads for "clearing" many gold trades world-wide.
While London is probably the most important trading and financial centre for gold, Zurich is the premier wholesale physical market. The three main Swiss banks, Credit Suisse, Swiss Bank Corporation and Union Bank of Switzerland not only operate their main international gold trading operations there, but each also has its own gold refinery making a wide range of bars for regional markets. The Swiss are key distributors to Italy, Turkey, the Middle East, South East Asia, and Japan. Zurich usually handles close to 1,000 tonnes of physical gold each year. Switzerland is also an important centre for gold investment through private banks, who often maintain a proportion of portfolios in gold.
Luxembourg became an important regional gold market for Europe in the 1980s after the imposition of value added tax on gold in Germany and, for a short while, in Switzerland. Luxembourg levied no tax and became a convenient "off shore" centre. But the withdrawal of tax, first in Switzerland and then in 1993 in Germany, reduced its appeal drastically.
In Frankfurt, the financial capital of Germany, Deutsche Bank (which now owns Sharps Pixley, a London fixing member), and Dresdener Bank are important international market-makers. Since the lifting of value added tax in 1993, their physical gold sales to investors have also increased.
New York's gold trading activities are principally centred on the New York Commodity Exchange (COMEX), which has become the leading gold futures and options exchange since gold operations began in 1975. COMEX attracts world-wide participation: many traders in Europe and Asia stay late in their offices until COMEX closes. The volume on the exchange is close to 10 million futures contracts annually, involving a turnover of over 30,000 tonnes of gold, although very little of this is actually delivered. The COMEX gold futures contract is for 100 ounces of 995 gold for delivery in any one of six delivery months -- February, April, June, August, October and December. COMEX also started gold options in 1982, with a 100 ounce contract on which volume averages 1.5 to 2 million contracts annually. Comex merged in 1994 with the New York Mercantile Exchange (NYMEX).
Besides COMEX, several New York finance and bullion houses, such as J. Aron & Co./Goldman Sachs, J.P. Morgan and Republic National Bank of New York, are major traders in the international gold market. The rise in United States annual gold output in the 1980s from a mere 30 tonnes previously to 300 tonnes today has also meant that New York houses are increasingly involved in gold exports, primarily to Far East markets.
Tokyo's gold trading is focused on the Tokyo Commodity Exchange (TOCOM) on which a one kilo gold futures contract has been quoted since 1982. Turnover has reached 2.5 million contracts annually. Several leading Japanese trading companies also participate in international trading, at the same time as importing and supplying the domestic physical market, which absorbs around 300 tonnes a year.
Regional gold markets serve an important role in distributing physical gold. The main regional markets are Dubai in the United Arab Emirates, serving the Middle East and the Indian subcontinent; Singapore serving Indonesia, Malaysia, Thailand and India; and Hong Kong distributing to Taiwan, mainland China, Vietnam and South Korea. Physical shipments through those centres are often substantial: Hong Kong handled over 400 tonnes in both 1988 and 1989, and close to 350 tonnes in 1992. Singapore moved close to 300 tonnes in both 1990 and 1991 and over 400 tonnes in 1992.
Hong Kong is a centre of gold trading through the Chinese Gold and Silver Exchange Society, which was founded in 1910. Several international bullion houses also maintain offices in Hong Kong: they do not trade on the Exchange itself, but make a parallel market in "loco London" gold during market hours. Hong Kong is thus a particularly important centre in early morning trading, setting the tone for the gold market for the day.
Since 1989, Turkey has been emerging as a new regional market as gold trading regulations are relaxed and has become a distribution point for Eastern Europe, the southern republics of the former Soviet Union and the Middle East. In 1995 the Istanbul Gold Exchange was formally opened.
Also see this article that guestimates The present-day fortune of the House of Rothschild, and this scrap book of articles and observations regarding the LBMA.
from http://www.gold-eagle.com/editorials_99/taylor020199.html:
EVIDENCE OF GOLD PRICE MANIPULATION
Yesterday on CNBC, Bill Murphy, President of Le Metropole Café, discussed the efforts of an organization known as GATA (Gold Anti-Trust Action) to study and perhaps seek legal remedies against the control of the price of gold by some of Wall Street's major investment banks. GATA has organized in response to recent ADMISSIONS by major Wall Street investment houses and Federal Reserve officials that they have been colluding and continue to collude to control the price and supply of certain financial securities, some of which involve gold.
* The bailout by Wall Street investment houses, orchestrated by the Federal Reserve Bank of New York, of Long-Term Capital Management, whose positions in derivatives were starting to be priced in ways that would bring sweeping changes to the prices of all sorts of securities in various markets. The LTCM bailout was frankly an effort to control the price and supply of these derivatives. Under anti-trust law, any combination to control price or supply is illegal.
* The formation by some of the same Wall Street investment houses of the Counterparty Risk Management Group. To collude with competitors in business to "manage risk" is to seek to control price and supply. Again, this is frankly a violation of antitrust law. It is as if GM, Ford, and Chrysler got together to "manage the risk" of making cars, and did so by agreeing not to price cars below a certain point and not to pay workers above a certain point.
* Fed Chairman Greenspan's admission to Congress last July that government central banks were planning to lease gold into the market to suppress its price. "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over the counter, where central banks stand ready to lease gold in increasing quantities should the price rise". Soon thereafter, the gold market plunged.
Since the investment houses and Federal Reserve officials already have admitted this much fixing of the price and supply of gold, we believe that there probably is a lot more price and supply fixing to be discovered. A lawsuit very well may discover it.
This conspiracy of the Wall Street investment houses and Federal Reserve officials has devastated an honest industry, the mining industry -- its employees, stockholders, and communities around the world. It has benefited only the market manipulators themselves.
Mr. Murphy said "We believe that financial institutions are taking advantage of this manipulation to borrow gold and dump it into the market place. This "gold carry" trade is similar to the "yen carry" trade. Money is being borrowed a very low rates (currently under 1%) -- this borrowed gold is continuously being supplied (or shorted) to the market. Without this supply, the gold market would have to rise significantly to clear a very substantial supply/demand deficit. The reversal of the "yen carry" trade late last summer caused world wide financial chaos. It is our opinion that the gold loans to speculative borrowers are now greater than one year's mine supply. If the speculative gold loans, resulting from this collusion is not curtailed, the reversal of the " gold carry" trade could be much more disruptive to the financial markets than the reversal of the "yen carry" one was".
But the harm being done by this conspiracy goes far beyond the mining industry; this conspiracy harms the economy of the whole world. For it is eroding gold's traditional monetary function, its restraint on currencies, and is distorting markets everywhere. That is, everybody who is not part of the conspiracy has an interest in maintaining open and honest financial markets and dependable currencies. Thus everybody else should be on our side. If you would like to help GATA, you can contact them at
lepatron@lemetropolecafe.com
Jay Taylor
Gold Resource & Environmental Stocks
JTaylo5203@aol.com
2 February 1999
Here is an essay by William Blase which is an overview of the conspiracy, addressing the whole question of the Federal Reserve in some depth. Good reading.
read Gold and the Founding Fathers by Robert S. Getman, as of 1976 an attorney practicing with the firm of Kelley Drye & Warren in NYC. The article is an adaptation of the first part of "The Right to Use Gold Clauses in Contracts," Brooklyn Law Review (Winter, 1976).
In 1899, M. W. Walbert published a book he titled "The Coming Battle." WorldNetDaily summarizes the book as follows:
First published in 1899, republished for the first time in 100 years! The Coming Battle documents from Congressional records, newspaper reports and writings by the founding fathers and others a chronology of events long forgotten that shaped our fledgling nation from 1776 to 1899. Read about the manipulation of our money and its supply, the intentional creation of recessions, depressions and panics. The manipulation of the stock markets. The demonitization of silver. A breathtaking history told in the words of a contemporary witness to these events. You must have this book! Great gift for anyone interested in history, government, economics or the fate of our nation.
You can have it here for free.
Some quotes regarding the banking scam:
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."
-- Alan Greenspan
"There should have been far more warning about the speculative splurge on Wall Street and the extent of citizen participation. That was the mistake that the Federal Reserve made in the Twenties, and the mistake that it has made again now..."
-- Economist John Kenneth Galbraith, interviewed in the Observer, June 21, 1998.
"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin... Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again... Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in... But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit."
-- Sir Josiah Stamp, a former president of the Bank of England
"The Central Bank is an institution of the most deadly hostility existing against the principles and form of our Constitution...if the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
-- Thomas Jefferson
"The money powers prey upon the nation in times of peace and conspire against it in times of adversity. It is more despotic than a monarchy, more insolent than autocracy, (and) more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe...corporations have been enthroned, and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed."
-- Abraham Lincoln
"This act establishes the most gigantic trust on earth...When the President signs this act, the invisible government by the money power, proven to exist by the Money Trust Investigation, will be legalized... The new law will create inflation whenever the trusts want inflation. From now on depressions will be scientifically created."
-- congressman Charles A. Lindberg, Sr., upon the passage of the Federal Reserve Act on Dec. 23, 1913
"In the U.S. today, we have in effect, two governments...we have the duly constituted government...then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve System, operating the money powers which are reserved to the Congress by the Constitution."
-- Congressman Wright Patman, Chmn of House Banking Cmte (in the 60's)
"Does it not seem strange to you that these men just happened to be CFR and just happened to be on the Board of Governors of the Federal Reserve, that absolutely controls the money and interest rates of this great country without benefit of congress? A privately owned organization, the Federal Reserve which has absolutely nothing to do with the United States of America!"
-- Barry Goldwater, With No Apologies, page 231
"100% of what is collected is absorbed solely by interest on the Federal Debt and by Federal transfer payments [welfare, social security, and other mandatory entitlements]. In other words, all individual income tax revenues are gone before one nickel is spent on the services taxpayers expect from their government."
-- from the 1984 Grace Commission, Report to the President, pg. 4
here is a compact dose of globalist rhetoric, published September 15, 1998, from http://news.bbc.co.uk/hi/english/business/the_economy/newsid_172000/172222.stm:
Capitalism 'falling apart'
International investor George Soros has warned that the global capitalist system is "coming apart at the seams."
Mr Soros said the panic withdrawal of capital which had spread to Latin America could lead to financial collapse in Brazil and then spread to Argentina.
He warned that a "global credit crunch" was in the making and would probably lead the world into recession.
He also slammed the West's response to the Russian crisis and called for greater intervention by leading nations if a full blown crisis was to be averted.
He described the leading industrial nations' response to the financial market meltdown in Russia as "woefully inadequate".
Mr Soros was testifying before the US House of Representatives Banking Committee.
Call for greater intervention
Mr Soros said further turmoil could only be prevented "by the intervention of international financial authorities but these prospects are dim."
He said the global capitalist system involved not only free trade, but more importantly, the free movement of capital in "a gigantic circulatory system" in which capital was sucked up by markets and institutions at the centre and pumped out to the periphery.
Mr Soros said the Asian crisis had reversed the direction of the flow of capital. It had begun to flee the periphery, taking refuge in the centre.
This was not good for either the periphery or the centre in the long term.
New rescue agency
Mr Soros renewed a previous call for a new global credit insurance body to complement the efforts of the International Monetary Fund (IMF) and World Bank.
Mr Soros proposed the creation of special drawing rights whereby countries which could not repay their debts could restructure their loans to easier terms if their governments pursued policies approved by the IMF.
He said countries should be rewarded for biting the bullet and confronting their problems -- unlike Malaysia which has closed itself off to the world in a negative move that would hurt its neighbours.
"If there is no reward for good behaviour, meltdowns will multiply," he said.
He said the loan programmes of the IMF had so far not worked but urged the US Congress to pass the IMF funding bill the agency needs to continue its work.
"Unless Congress is willing to support the IMF the disintegration of the global capitalist system will hurt US financial markets because we are the centre of the system."
Soros has a hidden Bilderberg agenda, which I dissect in detail below.
from Reuters, 1998-Oct-30, from http://biz.yahoo.com/rf/981030/d4.html:
Japan Sakakibara says U.S. economy most vulnerable
TOKYO, Oct 30 (Reuters) -- Japan's top financial diplomat Eisuke Sakakibara said on Friday that the U.S. economy will be most vulnerable from now on due to its low savings and high fiscal debt.
Sakakibara said that in a crisis such as now money tends to flow back to its home country and is used there.
Therefore, Asian nations including Japan which have higher savings rates had more potential for growth.
”The U.S. economy is the most vulnerable as it is the world's top debtor nation and due to its low savings rate Japan has the strongest potential,'' Sakakibara said.
Sakakibara was speaking at a symposium about Asian economies.
Sakakibara said the global financial system was in for major changes, adding that the world economy was currently facing a credit crunch.
He said following the turmoil in Asian economies and more recently Russia, private capital was not at all flowing into emerging markets.
This situation was likely to continue for a while, he said, adding that Japan was promoting steps to bring back private capital by extending government guarantees on private-sector loans made to emerging markets.
”Basically, the age when private capital took risks in an emerging market on its own has come to an end,'' he said.
Sakakibara said he believed that more Japanese banks would pull out of international operations following such moves by Daiwa Bank and Mitsui Trust & Banking.
continuation of file from www.l0pht.com/pub/blackcrwl/patriot/federal_reserve.txt:
http://www.banyansociety.org/histfinregionsinst/crises/goldbugTheBankingScam.html
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