International financial institutions (IFIs) are international financial organizations which multiple nations founded. They are subject to international law instead of the laws of any one single country. The IFIs are usually owned by national governments of the founding members.
Sometimes other international institutions or organizations are stakeholders as well. Even though there are IFIs that two or three nations created, the best known ones were developed by numerous national participants. The most famous international financial institutions arose following the Second World War in order to help rebuild Europe, as well as to offer the means of multinational cooperation in overseeing the world’s financial system.
The largest international financial institution in the world today proves to be the European Investment Bank. In 2013, this organization possessed a balance sheet that amounted to 512 billion euros. This compares to the main component parts of the World Bank, the IBRD with $358 billion in assets as of 2014 and the IDA with its $183 billion in assets as of 2014. By means of comparison, the world’s biggest international commercial banks boast assets each totaling between $2 – $3 billion, as with Britain’s HSBC and the United States’ JP Morgan Chase Bank.
Arguably the most important international financial institutions in the world today remain the ones which the Bretton Woods agreement founded in 1944. These are the World Bank and the International Monetary Fund. Both are participating members of the United Nations system. Their goals are to improve the standards of living in their respective member nations.
Each of these two organizations has its own approach to achieving this mandate, yet they complement each other. The IMF concentrates its efforts on larger macroeconomic issues. The World Bank instead focuses on developing the economies and reducing the poverty of member states over the longer term.
The World Bank and IMF came into being in July of 1944 at the internationally attended Bretton Woods Conference held in New Hampshire. The conference had a goal to build up a new framework of development and economic cooperation which would help to establish a more prosperous and stable global economy. Over 70 years later, this goal is still critical to the operations of both international financial institutions. Only the means they use to reach the goals has changed as different economic challenges and developments arise.
The World Bank mandate is to encourage poverty reduction and economic improvement longer term. They do this by offering financial and technical assistance to aid countries which are trying to reform sections of their economies or to develop particular projects. These projects could be delivering electricity and water, constructing health centers and schools, safeguarding the environment, or fighting disease. Such help as the World Bank provides is typically longer term in nature and funded by contributions from member nations as well as by issuing bonds. The staff of the World Bank is typically specialized in certain sectors, issues, or methods.
The IMF on the other hand operates under a mandate to foster monetary cooperation on an international level while it offers technical assistance and policy advice to help countries to develop and keep more prosperous and stronger economies. As part of this, the IMF offers loans. They also help nations to create policies and programs that will address their imbalance of payments if they are unable to obtain affordable term financing to meet their international financial obligations. These loans are either medium or short term. The funds come from the quota contributions’ pool provided by member states. The staff of the IMF is mainly economists who possess vast experience with financial and macroeconomic issues.
The term 'International Financial Institutions (IFI)' is included in the Banking edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.