Economy / Banking System In India / Bank for International Settlements (BIS)
Bank for International Settlements (BIS)
Role and Function:
- The Bank for International Settlements (BIS) is an international financial institution that facilitates international monetary and financial cooperation. It serves as a bank for central banks around the world.
- BIS is headquartered in Basel, Switzerland, and provides banking services exclusively to central banks and other international organizations.
Ownership and Membership:
- Central banks and monetary authorities own and govern the BIS. It has 60 member central banks or monetary authorities, and India is among the member countries.
Functions of the BIS:
- International Cooperation: BIS fosters international monetary and financial cooperation among central banks, contributing to global financial stability.
- Bank for Central Banks: It serves as a specialized financial institution that central banks can turn to for various services and collaboration.
Write Off, Write Down, and Haircut:
- Haircut: In banking terminology, a haircut occurs when the value of an asset is reduced because it cannot be fully realized. This reduction reflects a decrease in the asset's value.
- Write Down: It refers to the reduction in the book value of an asset to reflect its current market value. For example, if a loan is unlikely to be fully recovered, the bank may decide to write down its value on the books.
- Write Off: Writing off an asset involves removing it from the books entirely, acknowledging that it is unlikely to be recovered. It signifies that the asset has become non-performing or has little chance of generating future cash flows.
Significance of Haircut:
- Haircuts are significant in the context of managing non-performing assets (NPAs) or distressed assets. They represent a pragmatic approach to recognizing the actual recoverable value of assets.
Conclusion: The Bank for International Settlements plays a crucial role in promoting collaboration and stability among central banks globally. Understanding terms like write off, write down, and haircut is essential for assessing the financial health of banks, particularly in the context of managing distressed assets.
