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Tower of Basel: The Shadowy History of the Secret Bank that Runs the World

By Adam LeBor

The world’s most exclusive club has eighteen members. They gather every other month on a Sunday evening at 7 p.m. in conference room E in a circular tower block whose tinted windows overlook the central Basel railway station.

They have come to Basel to attend the Economic Consultative Committee (ECC) of the Bank for International Settlements (BIS), which is the bank for central banks. *

The BIS has the right to communicate in code and to send and receive correspondence in bags covered by the same protection as embassies, meaning they cannot be opened. The BIS is exempt from Swiss taxes.

Like many of those working for the UN or the IMF, some of the staff of the BIS, especially senior management, are driven by a sense of mission, that they are working for a higher, even celestial purpose and so are immune from normal considerations of accountability and transparency.

What, then, does this matter to the rest of us?

Central bankers like to view themselves as the high priests of finance, as technocrats overseeing arcane monetary rituals and a financial liturgy understood only by a small, self-selecting elite. But the governors who meet in Basel every other month are public servants. Their salaries, airplane tickets, hotel bills, and lucrative pensions when they retire are paid out of the public purse.

Central bankers, whose independence is constitutionally protected, control monetary policy in the developed world. They manage the supply of money to national economies. They set interest rates, thus deciding the value of our savings and investments. They decide whether to focus on austerity or growth. Their decisions shape our lives.

Central bankers now “seem more powerful than politicians,” wrote The Economist newspaper,“holding the destiny of the global economy in their hands.”How did this happen? The BIS, the world’s most secretive global financial institution, can claim much of the credit.

The founder of the technocrats’ cabal was Per Jacobssen, the Swedish economist who served as the BIS’s economic adviser from 1931 to 1956.

Jacobssen left the BIS in 1956 to take over the IMF. His legacy still shapes our world.

The bank’s opacity, lack of accountability, and ever-increasing influence raises profound questions—not just about monetary policy but transparency, accountability, and how power is exercised in our democracies.

The BIS is the most important bank in the world and predates both the IMF and the World Bank. For decades it has stood at the center of a global network of money, power, and covert global influence.

In theory, sensible housekeeping and mutual cooperation, overseen by the BIS, will keep the global financial system functioning smoothly. In theory. The reality is that we have moved beyond recession into a deep structural crisis, one fueled by the banks’ greed and rapacity, which threatens all of our financial security.

The Bundesbank and the European Central Bank, two of the most powerful members of the BIS, have driven the mania for austerity that has already forced one European country, Greece, to the edge, aided by the venality and corruption of the country’s ruling class. Others may soon follow. The old order is creaking, its political and financial institutions corroding from within.

Anger and cynicism are corroding citizens’ faith in democracy and the rule of law. Once again, the value of property and assets is vaporizing before their owners’ eyes.

The BIS sits at the apex of an international financial system that is falling apart at the seams.

The bank has made itself a central pillar of the global financial system.

Considering the BIS’s pivotal role in the transnational economy, its low profile is remarkable.

The strategy seems to work. The Occupy Wall Street movement, the anti-globalizers, the social network protesters have ignored the BIS.

As the world’s economy lurches from crisis to crisis, financial institutions are scrutinized as never before. *

Yet somehow, apart from brief mentions on the financial pages, the BIS has largely managed to avoid critical scrutiny. Until now.


In 1919—just as there would be in 1945—there were, broadly, two schools of thought: the punishers and the rebuilders. France led the punishers.

The rebuilders, who included most of Wall Street, believed otherwise. Europe could be reconstructed, but its future lay in trade and financial cooperation. The aim was not to reduce Germany to penury, but to help it fix its economy and start trading again as soon as possible.

Whatever sum was finally agreed upon, there was at least some consensus that a new bank would be needed to manage Germany’s reparations. Schacht and Norman argued that the new bank would keep the issue free of politics and manage it on a purely financial basis.

The BIS would be an international clearinghouse for central banks, the world’s first.

The constitution was eventually drafted by one of the many committees set up to establish the BIS.

The bank’s statutes, still extant today, enshrined its absolute independence from interfering politicians and governments.

While Montagu Norman and Hjalmar Schacht had exploited the chaos around the German reparations question to finesse the world’s leading powers into creating the BIS, the Dulles brothers used Europe’s disorder to broker deals and monetary instruments to refinance Germany.

Wall Street in the 1920s was possessed by a near-mania to lend to Germany.

But the real significance of this flow of capital was not just financial. The bonds between the American bankers, businessmen, and industrialists, and their German counterparts, would prove far more durable than the doomed Weimar Republic, and even the Third Reich. With the BIS as the central point of contact, these links would endure during the Second World War and reshape Europe after 1945.

For Hjalmar Schachr and Montagu Norman, January 20, 1930, was a date to savor: they had created a bank beyond the reach of either national or international law.

The Hague Convention guaranteed that the BIS would be the world’s most privileged and legally protected bank. Its statutes, which remain in force to this day, essentially make the BIS untouchable.

Norman and Schacht had invented a perpetual money machine.

In an era when nationalism had ripped apart the old European order, perhaps the bankers’ transnationalism could bring peace. The BIS, had after all, been specifically designed in the aftermath of war for that purpose.

The bank was also a creature of its time, of new multilateral institutions run by apolitical technocrats. The League of Nations, which was the forerunner of the United Nations, would defuse the world’s political crises, while the BIS would ensure financial stability.

The end of reparations and the collapse of the gold standard proved a boon for the BIS. It allowed the bank to focus on its founders’ intentions: to build a new transnational financial system of large capital movements, free from political or governmental control.

The new mechanisms of transnational capitalism allowed the bankers to send vast sums of money quickly and easily around the world and harvest vast profits from doing so, free from oversight.

A small clique of financiers, unaccountable to any government, most of whom knew each other well, had somehow amassed unprecedented economic and political power.

Hitler appointed Schacht General Plenipotentiary for the War Economy.

Schacht was a creature of his time. The dreams of the internationalists who believed that the BIS, like the League of Nations, would engender global peace and harmony were dead. Invasion, annexation, and mass murder were the new tools of international empire building.

Yet even as he rebuilt Germany’s economy, Schacht must have asked himself if the price was really worth paying.

He had made a deal with the devil to see his homeland rise again from, as he saw it, the humiliation of the Treaty of Versailles.

Like many Germans of his class, Schacht tried to rationalize the Nazis’ brutality and anti-Semitism until the contradictions could be borne no longer.

As Europe slid to war, the atmosphere in Basel between the central bank governors remained entirely cordial.

The bankers began to see the broader picture—the global linkages between their decisions and their consequences.

In 1939 the BIS board welcomed one of the world’s most powerful industrialists: Hermann Schmitz, the CEO of IG Farben—the giant German chemical conglomerate. IG Farben was much more than an ordinary business. It was a virtual parallel state, which would soon evolve into an unprecedented synthesis of finance capital and mass murder.

The presence of Hermann Schmitz on the BIS board highlighted how deeply the bank was entangled with the Third Reich. Nazi Germany benefited immeasurably from its relationship with the BIS.

The BIS thus ensured that the Reichsbank, which should have been a pariah institution, remained a central pillar of the global financial system.

Schacht’s status and prestige made the criminal actions of the Reichsbank * seem acceptable.

Per Jacobssen joined the bank in 1931 as economic adviser.

Jacobssen had made his name while working at the Economic and Financial Section of the League of Nations from 1920 to 1928. He was far more than an adviser. He shaped the bank’s policy recommendations of laissez-faire economics and the importance of individual responsibility over state provision. He supported European federalism and supranationalism. His legacy has shaped our world.

It was a peculiar arrogance that granted such self-belief to a clique of unaccountable financiers. A clique that had, by sleight of hand, built its own bank that was untouchable and beyond the reach of any government - and then proclaimed its existence to be something of virtue for the rest of mankind.

“The Bank for International Settlements is the bank which sanctions the most notorious outrage of this generation—the rape of Czechoslovakia.” — George Strauss, Labor MP, speaking in the House of Commons, May 1939

The Czechoslovaks’ faith in the probity of the BIS and the Bank of England was tragically misplaced. The gold was sacrificed, with barely a second thought, to the needs of transnational finance and the Third Reich.

The governor of the Bank of England had no interest in whether Czechoslovakia was free or a Nazi colony. “Political” considerations must not affect the BIS’s transactions.

With London, Paris, and Basel’s compliance, Nazi Germany had just looted 23.1 metric tons of gold without a shot being fired.

Norman could have stopped the transfer immediately. He was the governor of the Bank of England, which held the two BIS accounts involved.

Norman blithely announced that his primary loyalty was not to Britain, but to a hyper-privileged, international bank that was not even a decade old.

The world’s most powerful international bankers were not only unwilling to obstruct the Nazi seizure of Czechoslovak—or Austrian—assets. They simply could not conceive of any reason why they should do so.

The BIS’s gold trades were a primitive forerunner of today’s globalized economy where vast sums instantly fly back and forth at the touch of a keyboard.

The bank’s management turned the BIS into a de facto arm of the Reichsbank.

It accepted looted Nazi gold until the final days of the war. It recognized the forcible incorporation of occupied countries, including France, Belgium, Greece, and the Netherlands, into the Third Reich.

Thanks to research by Piet Clements, we know that during the war years a total of 21.5 metric tons of gold passed in and out of the Reichsbank gold account at BIS, of which 13.5 metric tons was acquired during the war.

The cozy relations between the BIS, the SNB and the Third Reich stayed buried until the late 1990s, when the scandal broke that Swiss commercial banks were still holding the assets of Holocaust victims.

For the new class of transnational financiers, war was merely an interruption in commerce, albeit a highly profitable one.

Mr. Thomas H. McKittrick, the American president of the BIS, has announced his decision to continue his efforts for a close cooperation between the Allied and German business world, irrespective of the opposition of certain leftist radical groups; in these efforts he counts on the full assistance of the American State Department. “After the war such agreements will be invaluable,” said McKittrick.

It was becoming more clear that the world would need a new international financial system to finance postwar reconstruction and stabilize trade. In July 1944 more than seven hundred delegates from the forty-four Allied nations gathered at the Mount Washington Hotel in Bretton Woods.

The conference agreed on the creation of the International Monetary Fund (IMF) and an International Bank for Reconstruction and Development (BRD), which became part of the World Bank.

Cocooned in Basel, the BIS president * had spent the war years in a parallel universe, one in which neutrality meant that the Reichsbank—the financial motor of war, plunder, and genocide—was judged equal to those banks whose assets it had stolen.

Soon after he stepped down as BIS president in 1946, he was appointed a vice president of Chase National in New York, in charge of foreign loans.

The Roman philosopher Cicero observed, “The sinews of war are infinite money.” An updated version of his epithet would note that “the sinews of war are the transnational flow of infinite money,” which will find its way around any obstacle.


At first glance, the Paris accord on multilateral payments seems an obscure footnote to postwar economic history.

But this little-known accord was, in fact, highly significant. An important precedent had been set: transactions between central banks would now go through Basel, rather than between national treasuries.

The BIS had effectively reasserted itself as an international clearinghouse for Europe’s central banks.

The bank’s excellent connections with American policymakers brought an early understanding of Washington’s commitment to a new, united Europe.

The new Europe would need swift, international payment mechanisms, more harmonized exchange rates, and perhaps eventually a new single currency. There was nobody better placed to offer these services than the technocrats of the BIS.

Despite the Mashall Plan, postwar Germany was devastated, its population barely scraping a living

In 1948, everything changed. The Reichsbank was abolished completely and replaced by the Bank deutscher Länder (BdL).

Unlike the Reichsbank, which had been brought under government control, the BdL, which would now represent Germany at the BIS in Basel, had its independence constitutionally guaranteed.

At the same time, Ludwig Erhard, the economic director of the British and American occupation zones, lifted price restrictions and controls. The results were spectacular. Employment soared, inflation plummeted, the economy boomed.

But the new central bank, currency, and Germany’s economic recovery were all deeply rooted in the Third Reich.

The lines of financial continuity between the Third Reich and postwar Germany reached right to the top. The BdL’s first president, Vocke, was a Reichsbank veteran and ally of Hjalmar Schacht.

Every state institution in postwar Germany—the police, judiciary, civil servants, teachers, doctors, and the intelligence services—relied on former Nazis to function. But the continuity among the bankers was striking.

With the United States supplying the money through the Marshall Plan and the BIS providing the financial and technical expertise, the drive toward a united Europe was unstoppable.

Marshall aid came at a price: remodeling European societies on the American model of consumerism and consumption.

For that to happen, and for the money to flow freely, new mechanisms of international payment had to be constructed, with the BIS at the center.

At each step on the road to a united Europe, the BIS would be there.

With Marshall Plan aid dependent on progress toward a federal Europe, the United States could, and did, wield enormous influence on the political structures of the postwar continent.

An unelected, unaccountable, and secretive financial institution was issuing policy prescriptions for democratic governments. *

In November 1961 the London Gold Pool (LGP) was set up. The United States, West Germany, France, Italy, Britain, Belgium, the Netherlands, and Switzerland contributed a total of $270 million to the pool.

The funds would be used to maintain dollar parity at $35 an ounce, in line with the Bretton Woods agreements.

The BIS gold cartel was constructed on conditions of complete secrecy. There was not even a formal written agreement.

Every month the Bank of England reported to an experts’ group of officials from BIS member banks and the BIS itself, which met at the BIS.

Eventually, word got out.

The gold pool became the Committee on Gold and Foreign Exchange. It still exists today and is known as the BIS Markets Committee. The committee’s agenda and deliberations remain secret.

In 1961 the ten key industrial IMF member states, known as the G10 set up the General Agreement to Borrow (GAB).

When the IMF report was published in 1964 it recommended that all G10 central banks send the BIS confidential statistics about their monetary reserves.

The BIS had effectively relocated one of the most important international meetings of the key IMF members from Washington to Basel

When in 1964 the central bankers of the European Economic Community set up their Governors’ Committee to coordinate monetary policy, the committee was located at the BIS headquarters.

The following year, in 1965, the BIS even reached agreement on its 1930s investments in Germany. After a twenty-year break, Germany agreed to resume paying interest on the loans.

The deal was brokered by Hermann Abs, who had returned to Deutsche Bank.

Abs had been the most powerful commercial banker in the Third Reich and now enjoyed similar status and acclaim in the new West Germany.

In June 1966 a group of European central banks, the New York Federal Reserve, and the BIS agreed to make around $1 billion available to the Bank of England to defend sterling. This was significant, not just because of the sums involved, but because the BIS was its center.

In 1970, McKittrick passed away at a nursing home in New Jersey at the age of eighty-one. The New York Times ran a glowing story about the “world financier,” as it described him.

McKittrick’s secret deals with Nazi industrialists, his friendship with Emil Puhl and the BIS’s acceptance of looted Nazi gold were not mentioned.

Blessing’s retirement was short. In April 1971, at the age of seventy-one, he suffered a heart attack while on holiday in Orange, in France.

The New York Times marked Blessing’s passing with an article as laudatory as its summary of McKittrick’s career.

As for the slave laborers, leased for a few zlotys a day from the SS before being worked to death or executed at Kontinental-Öl’s network of concentration camps, it was as if they had never existed. *

To be frank, I have no use for politicians. They lack the judgment of central bankers.” Fritz Leutwiler, BIS president and chairman of the board, 1982–1984

During the Second World War, the BIS had acted as an information channel between the Allies and the Axis. It served the same purpose during the Cold War, as a neutral and extremely comfortable meeting point for the Communist and capitalist worlds.

The more the Communists adapted to capitalism, the sooner their system would collapse, the BIS managers believed—correctly as it turned out.

One day in August 1989 tens of thousands of East German refugees gathered on the Hungarian-Austrian frontier. By then it was clear that Communism was dying.

By the end of the year the entire Soviet bloc had collapsed. The BIS had played an mportant role in this process. *

The Bank of Russia was finally admitted in 1996

Behind the scenes, the BIS continued to provide the financial expertise and technical assistance for the most significant economic development in postwar history: the drive toward European union.

The key, for both the European project and the ever-broader mandate of the BIS, was to present decisions, policies, and actions as “technical” and “apolitical,” of no concern to the average informed citizen. In fact, the opposite was true. There could hardly be anything more political than the handing over of national powers to unelected supranational bodies, while the necessary financial mechanisms were arranged and managed by a secretive and completely unaccountable bank in Basel.

Funk was released from Spandau Prison in Berlin the same year and died in 1960, but his pan-European plan for a continent free of trade and currency restrictions lived on and flourished.

In 1992 twelve European countries signed the Maastricht Treaty, which brought the European Union into existence.

Funk would certainly have applauded. The Nazi economics minister had raised the idea of European monetary union as early as 1940, to be introduced incrementally by harmonizing currency fluctuations and constraining exchange rates, as indeed happened.

The uncomfortable, unspoken truth is that the parallels between the plans of the Nazi leadership for the postwar European economy and the subsequent process of European monetary and economic integration are real. The BIS runs like a thread through both.

The BIS helped ensure that the postwar successors to the Reichsbank, the Bank deutscher Länder, and the Bundesbank, would continue to dominate the economies of postwar Europe.

Funk’s analysis and prediction are unsettlingly prescient of the subsequent course of postwar European economic and political history.

Their legacy has proved extremely profitable. Germany now has the largest economy in the European Union and the fourth largest in the world. Greece faces collapse, and Spain is mired in recession, but Germany is booming...

By the early 1990s, Funk’s “European Large-Unit Economy,” perhaps better known as the Eurozone, was clearly in sight.The technical preparations had been going on for decades.

In December 1993 Alexandre Lamfalussy stepped down as general manager of the BIS to start work as the director of the European Monetary Institute (EMI), the precursor of the European Central Bank.

The bank had a new manager, Andrew Crockett, a British economist who had worked for the IMF from 1972 to 1989. Crocket came to the BIS in 1994 from the Bank of England, where he had spent four years as an executive director.

Crockett understood that the establishment of the EMI marked the end of an era for the BIS.

Its original mission, of managing German reparations payments from the First World War, had long faded away.

The BIS had to find a new purpose. To Crockett it was clear.

“Crockett said, we are going to go global.” But for that to happen, the United States needed to be on board.

During the 1970s and ’80s, Washington had not been especially interested in the BIS. The focus then had been primarily on trade, rather than finance.

That began to alter in the 1980s and changed hugely in the 1990s.

In 1994 the Federal Reserve finally took up its shares in the BIS, joined the bank and appointed two directors to the board: the chairman of the Federal Reserve and the president of the New York Federal Reserve.

Two years later, in 1996, the central banks or monetary authorities of China, India, Russia, Brazil, Hong Kong, Singapore, and Saudi Arabia joined. The BIS’s future was assured.

The BIS went from being a Eurocentric thing to which the United States paid little attention, to something global and international.

In June 1998, four years and five months after Alexandre Lamfalussy left the BIS to set up the EMI, it was closed down—a mark of its success, rather than its failure. The European Central Bank opened for business. Seven months later, on January 1, 1999, eleven countries launched the euro.

The euro finally replaced national currencies in January 2002.

Among the jubilation, less attention was paid to the political aspects of the single currency. Once again, the creeping removal of national sovereignty was portrayed as a fundamentally technocratic innovation, rather than a political decision.

In London the idea of surrendering monetary sovereignty was regarded with horror. In Washington, DC, Paul Volcker thought, “It was a very peculiar thing to have a central bank without a government.”

For many, it seemed that the introduction of the euro was, in part, a continuation of the Second World War by other means. The real issues were not monetary, but political.

French politicians believed that the single currency would solve the German problem forever.

The French believed—erroneously as it turned out—that Berlin would no longer be able to dominate the European economy. In fact the Bundesbank shaped the design of the ECB, and retained enormous influence over the ECB’s operations.

The creation of the euro was a political compromise. France let Germany unify in 1989. But France was worried that a unified Germany would dominate the whole continent and would be too strong. So Paris said, OK, you can unify but without the deutschmark, and we will have the euro instead.

The new currency, intended to symbolize a new era of European cooperation was really a means of settling old scores.

And for all the technical expertise supplied by Lamfalussy and his BIS-in-exile in Frankfurt, the project was doomed from the start.

There were a lot of economists saying that, but the politicians said we know better, we are creating history.

“The member countries of the Eurozone and the European Union have always used somewhat narrow decisions about economic structure to try to build a broader political economy in Europe,”

In other words, technical decisions about financial and monetary policy have been used to introduce the supranational state by stealth—often via the BIS. *

The warnings about the single currency’s contradictions went unheeded and Europe is now paying the price.

It was obvious from the outset that the euro could not work, said Zsigmond Jarai, who attended numerous meetings at the BIS and was well acquainted with his compatriot, Alexandre Lamfalussy. “Before the crisis, Lamfalussy told me, because it was clear to everybody, that if you have a common currency you have to have a common economic and fiscal policy from the beginning. Lamfalussy told me that the idea was they create the currency first and that will force the creation of a more common economic and fiscal policy.”32 Europe, however, is still waiting. *

Over the years the BIS has made itself the central hub for the world’s central bank governors and their staffs.

Meanwhile, the European Central Bank * is now one of the world’s most powerful central banks.

The influence of the BIS, the ECB’s parent bank, is clear.

To whom then is the ECB democratically accountable? In effect, nobody.

Like the BIS, the ECB keeps its inner workings secret.

But the course of events in postwar Europe had been decided decades before the ECB opened for business.

Now seventy-three years old, the bank has evolved into one of the world’s richest and most influential anachronisms. Montagu Norman’s “cozy club” has sixty members. They circle the globe.

Since 2007 the ongoing financial crisis has neither reduced the value of the BIS’s assets nor dented its profits and prestige.

By the end of March 2012, profits had nearly doubled, to the equivalent of around $1.17 billion—almost $100 million a month—and the bank’s total equity had increased by 40 percent to around $28 billion. *

These are extraordinary sums for a single financial institution with just 140 clients and two local offices, in Mexico City and Hong Kong.

The bank’s managers regularly warn against the dangers of excessive lending and inflation. Austerity is seen as a necessary medicine, no matter how unpleasant its consequences. *

Yet, the heart of the matter is that BIS is an opaque, elitist, and anti-democratic institution, out of step with the twenty-first century. The BIS should have been closed down in the early 1930s, after the collapse of the German reparations program. Instead it funded the Holocaust and the Nazi war machine. *

After 1945 the BIS and its allied committees shaped much of the postwar financial world.

Without the BIS the euro would not exist. The BIS gave birth to the European Central Bank, a bank that is accountable neither to the European Parliament nor to any government, even though it controls the monetary policy of seventeen countries.

These protections perpetuate the technocrats’ belief that a tiny, self-selecting elite, unaccountable to everyday citizens, should manage global finance.

Citizens and activists around the world are demanding accountability and transparency from banks and financial institutions. Yet, most have never heard of the BIS, an information deficit that this book has hopefully filled.

In the age of Twitter and Facebook, the BIS, once its central role and importance is known, could yet find itself at the center of a global firestorm. *