New CEO Takes the Helm at an Evolving BIS: Canadian Economist Malcolm Knight Talks about Changes in Risk Management, and Makes a Case for Globalization. (Bank for International Settlements)

Street protests against global institutions have become predictable during any gathering ,of world leaders. Yet, working largely below the fold' in Basel, Switzerland, one of the least recognized, but most influential institutions in the world: the Bank for International Settlements (BIS). Working closely with the International Monetary Fund (IMF) and the World Bank, the BIS acts to define financial standards and codes in their member countries, while the two better-known organizations assess the implementation of those standards. Those assessments can be used to withhold funds if a country seen as operating outside the norms defined by the BIS. Despite holding that power, BIS has not been challenged by the anti-globalization groups, perhaps because the bank seen as apolitical, simply helping to develop healthy standards of good financial market practice. Those standards help all countries to manage risks in the financial system, whether in the way that payment systems operate or in the controls on their securities systems. In recent years, as the European Central Bank has taken on some of the BIS' former regional role, the BIS and its member central bank governors have expanded their dialog with supervisors and governments to include the representatives of private sector financial institutions. One result of this, clearly not a background job, the administration of the controversial proposals for reform of the Basel Accord. These reforms are designed to set new standards for bank minimum capital. Judging from the high profile given the reform process by the mainstream financial press, Basel II definitely above the fold. And America, in the eyes of more than a few Europeans, is over the top as well, by insisting on following its own counsel with Basel II. Unlike the European Union, where all banks will be subject to the new capital rules, the Federal Reserve has said that only the largest U.S. banks will have to adopt the new standards. (U.S. concerns helped push the Basel Committee to make several key concessions in late October.) To some, failure of the U.S. to back the reforms at all levels was a stunner, given that the Basel Committee's chairman until this past spring was Bill McDonough, the former president of the New York Federal Reserve Bank. So consider their next surprise when another North American was asked to stride right into the vortex of the storm on Basel II. Malcolm D. Knight, a 59-year old Canadian hiker, canoist, and economist trained at the University of Toronto and London School of Economics, was appointed last spring as general manager and CEO at the BIS. Fresh from the Bank of Canada, where he was Senior Deputy Governor since 1999, Knight thinks of the reform process as a dialectic in which questions are asked about, for example, the new types of risk in non-traditional banking; and then the discussion geared to lead to the creation of new standards and tools for managing those risks. Knight's 24 years of staff work at the IMF will no doubt serve him well at BIS which provides the secretariat to support the committees which conduct this dialectic process. Notably, two of the most important Basel committees, those on banking supervision (BCBS) and on payment and settlement systems (CPSS), had both just finished major reports when contributing editor Ed Blount sat down with Malcolm Knight in Basel over the summer to discuss the evolving role of the BIS in a turbulent global arena. Blount: Are you the first North American to be the general manager and CEO of the BIS? Knight: Yes, previous general managers were all Europeans. Back in the 1930s and 1940s several BIS presidents were American citizens, but they were less involved with the day-today management of the Bank. This has always been the job of the general manager. Blount: How has the role of the BIS changed over the last ten years? Knight: At one time, the institution was very focused on Europe. …

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