The Economics of Money, Banking, and Financial Markets: Twelfth Edition, Global Edition

The Economics of Money, Banking, and
Financial Markets
Twelfth Edition, Global Edition
Chapter 14
Central Banks
Copyright © 2019 Pearson Education, Ltd.

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• This chapter considers the structure and activities of
central banks focusing primarily on the European Central
Bank and the Federal Reserve.
• Among the most important players in financial markets
throughout the world are central banks, the government
authorities in charge of monetary policy.
• Central banks’ actions affect interest rates, the amount of
credit, and the money supply, all of which have direct
impacts not only on financial markets but also on
aggregate output and inflation

Learning Objectives (1 of 2)
• Recognize the historical context of the development of the
central banking system.
• Describe the key features and functions of a central bank.
Discuss the European Central Bank (ECB) and the Federal
Reserve System.
• Discuss the structure and degree of independence of the
Bank of Canada, the Bank of Japan, and the People’s
Bank of China.

Learning Objectives (2 of 2)
• Discuss the structure and degree of independence of
banks in emerging market economies.
• Assess the degree of independence of central banks
around the world.

Origins of the Central Banking System (1 of 2)
• The Sveriges Riksbank or the Bank of Sweden, was
established in 1668, with its main function being lending
money to the government of Sweden.
• Rising global trade increased the volume of international
payments in the seventeenth century, hence the need to
create more central banks throughout Europe.
• The founding of the Bank of England (BoE) in 1694 marks
the de facto origin of central banking.
• Gradually, the central banking functions evolved in order to
safeguard monetary stability, which required central banks
to answer to their parliaments.
Origins of the Central Banking System (2 of 2)
• To avoid the risk of power concentration, the structure of the
Federal Reserve System, which was established in 1913, was
designed to distribute power over 12 regional Federal Reserve
banks and remained privately owned by its member banks.
• Most emerging market economies established their central
banks after WWII. The structure of these banks became similar
to those of ECBs.
• Over the last two centuries, the functions of central banks
throughout the world expanded to regulating the value of the
national currency, financing the government, and acting as a
‘lender of last resort’ to banks suffering from liquidity and/or
credit crises.

Global: Who Should Own Central Banks
• Arguments for public ownership:
– Central banks act in the ultimate public interest.
– Private ownership bias central banks toward self-serving profit-
making interests, hence increasing risk-taking and balance sheet
troubles.
– The global financial crisis highlighted concerns that the profit-
making target of private shareholders could hamper them from
saving the financial sector during financial crises.
• Arguments for private ownership:

– guarantees central bank independence
– restricts the distribution of dividends per share
– private owners are required to recapitalize the central bank in the
case of losses which lifts this burden off the fiscal budget.

Variations in the Functions and Structures
of Central Banks
• The roles of central banks have grown in importance as
their activities evolve over time.
• There are differences in the structure and policy tools that
each central bank adopts depending on the level of
sophistication of the banking and financial sectors.
• Central banks have taken on increasing responsibilities
which required more independence from fiscal authorities
and political institutions.

The European Central Bank, the Euro System,
and the European System of Central Banks (1 of 5)
• The European Central Bank (ECB) came into existence
on June 1, 1998, to handle the transitional issues of the
nations that comprise the Eurozone.
• The Eurozone is an economic and monetary union
consisting of the member states of the European Union
(EU) that have adopted the euro as their currency.
• The creation of the Eurozone and of the new supranational
institution, the ECB, was a milestone of European
integration.
• All of the member states of the European Union have to
comply with a set of economic and legal conditions.
• In January 1, 1999, only 11 EU member states had
adopted the euro.
– All of the Eurozone or euro area countries—i.e., the EU
countries that have adopted the euro—retain their own
National Central Banks (NCBs) and their own banking
systems.
• As of 2017, 19 countries out of the 28 member states of
the European Union have joined the euro area.
– The Eurosystem comprises the ECB and the NCBs of
those EU member states that have adopted the euro.

• Today, the EU is the world’s third largest economy after the
United States and China in terms of GDP. As of 2017, the
Eurozone had a population of 341 million citizens.
• There are 19 countries in the EU: Austria, Belgium,
Cyprus, Estonia, Finland, France, Germany, Greece,
Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the
Netherlands, Portugal, Slovakia, Slovenia, and Spain.
• In the U.K. referendum of June 23, 2016, 52% of British
voters voted to exit the EU. Accordingly, the United
Kingdom is scheduled to exit the EU in April 2019, a
process that has come to be known as “Brexit.”

• Since not all of the EU member states have adopted the
euro, the European System of Central Banks (ESCB)
was established alongside the Eurosystem to comprise the
ECB and the NCBs of all EU member states whether or
not they are members of the Eurozone.
– The NCBs of the EU member states that have retained
their national currencies are members of the ESCB
which are allowed to conduct their own respective
national monetary policies

Figure 1 The Organization of the ESCB

• The capital stock of the ECB is owned by the central banks of
the current 28 EU member states
• The balance sheet of the ECB—i.e., its assets and its liabilities
—is held by the NCBs.
• The shares of the NCBs in the total capital stock of the ECB are
weighted according to the shares of the respective member
states in the total population and GDP of the EU.
• The ECB adjusts the shares every five years and whenever a
new country joins the EU. The highest capital key
percentages of the ECB’s capital are held by Deutsche
Bundesbank and Banque de France.

Decision-Making Bodies of the ECB (1 of 5)
• The three main decision-making bodies of the European

Central Bank are
– The Governing Council
– The Executive Board
– The General Council

Figure 2 Structure and Responsibility for
Policy Tools within the ESCB

• The Governing Council is the main decision-making body of the
ECB responsible for formulating monetary policy in the euro
area.
• The main function of the Governing Council of the ECB is to
conduct monetary policy with the primary objective to maintain
price stability in the euro area.
• The Governing Council is chaired by the ECB president and the
council meets in Frankfurt on a fortnightly basis.
• At the beginning of each month, the Governing Council decides
on the monthly monetary policy decisions in accordance with
the economic and monetary developments in the Eurozone.

• Euro area countries are divided into groups according to the
size of their economies and the ranking of their financial sectors.
The Governors from the five largest countries—Germany,
France, Italy, Spain, and the Netherlands—share four voting
rights. The remaining 14 countries share 11 voting rights.
• The Executive Board of the ECB is responsible for the day-to-
day operations and management of the ECB and the
Eurosystem. The Executive Board comprises the following 6
members:
— the president and the vice- president of the ECB,
—four other members who take decisions in their personal
capacity

• The third decision-making body is the General Council of the
ECB, which comprises the president and the vice-president of
the ECB in addition to the governors of the NCBs of the 28 EU
member states.
• Without having voting rights, a few officials are allowed to attend
the meetings of the General Council such as members of the
Executive Board of the ECB, the president of the EU Council,
and one member of the European Commission.

• The main task of the General Council is to encourage
cooperation between the National Central Banks of the member
states of the EU.
• The General Council also performs important advisory functions
such as collecting statistical information for the ECB, preparing
the ECB’s annual reports, and standardizing the accounting and
reporting operations of the NCBs.
• The Statute of the ESCB and the ECB state that the General
Council is a transitional body which will be dissolved when all
EU member states have introduced the single currency.

How Monetary Policy is Conducted within
the ECB (1 of 8)
• The three main objectives of the ECB are to:
– maintain price stability in the economies of the EU
– support the economic policies of the Eurozone nations
– ensure an independent and open market economy
• As price stability is important for attaining economic growth
and job creation, the ECB endeavors to maintain its
independence from governments.

the ECB (2 of 8)
• The ECB was established in 1998 and headquartered in Frankfurt,
Germany. In 1999, member states of the euro area, including
Germany, ceded monetary and currency control to the ECB.
• The Bundesbank’s size is influential in the crafting of Eurozone’s
monetary policy at the ECB.
• During the European sovereign debt crises, more than five bailouts
were offered to the ailing European economies with the burden
lying mostly on the Bundesbank.
• Bundesbank was at odds with ECB, protesting that the monetary
financing of budget deficits violates the ECB’s independence from
government, political, and financial influence.

the ECB (3 of 8)
• To achieve its primary objective of price stability, the ECB aims to
maintain a medium-term inflation rate closely below 2%. The
Governing Council of the ECB sets the following three key policy
interest rates:
– Deposit facility rate, which is the rate on tenders to banks. It
is the most important policy rate because it provides the bulk
of liquidity to the banking system and determines how far
down the ECB’s quantitative easing program can push
sovereign bond yields.
– Refinancing rate, which is the rate on overnight deposits with
the Eurosystem
– Marginal lending facility rate, which is the rate on overnight
credit to banks from the Eurosystem

the ECB (4 of 8)
• The ECB’s operational framework consists of the following set of
conventional monetary policy instruments:
– open market operations
– standing facilities to provide and absorb overnight liquidity
– minimum or required reserve requirements for credit
institutions.
• Since September 2008 , the ECB has introduced a number of
unconventional or non-standard monetary policy measures to
complement the regular operations of the Euro system when
standard monetary policy has become ineffective at combating a
falling money supply and economic recessions.

the ECB (5 of 8)
• The unconventional monetary policy measures include:
– Emergency liquidity assistance (ELA)—that provides liquidity
and loans exceptionally to solvent banking and financial
institutions that are facing temporary liquidity problems.
– Quantitative easing, where central banks buy sovereign bonds
and/or other financial assets from commercial banks and
financial institutions to increase money supply and stimulate
the economy. Examples of these are the asset purchase
programmes (APP) and the Securities Market Programme
(SMP).The APP includes purchases of public sector securities,
private sector bonds, and asset-backed securities while the
SMP strictly limits purchases of government bonds by the
Eurosystem to secondary markets.

the ECB (6 of 8)
• The non-traditional monetary policy tools were temporary
and aimed at providing liquidity to financial markets and
reducing pressures on interest rates.
• Since 2014, the ECB has introduced a negative interest
rate policy (NIRP) on bank deposits in order to reduce the
slowdown in the economy.
• The ECB itself does not conduct monetary policies, but
assigns these tasks to the central banks. For example, in
the case of the quantitative easing program, the 19
National Central Banks are tasked with buying bonds in
their respective sovereign bond markets.

the ECB (7 of 8)
• Are Non-Euro Central Banks Constrained by Membership of the
EU?
– The 19 euro area nations share a common currency, joint
monetary policy rules, and flexible labor mobility. However, the
Eurozone lacks intra-country fiscal budgetary transfers that are an
essential shock absorbing mechanism.
– Strong sentiments of national pride, the imperfect labor market
conditions and the infeasibility of fiscal integration have impelled
many EU nations to refrain from adopting the euro.
– The most important disadvantage that non-Eurozone EU nations
wanted to avoid was the loss of their fiscal and/or monetary
autonomy. The non-Eurozone EU nations wanted to retain the
ability to freely conduct and implement their home-grown fiscal
and monetary policies.

the ECB (8 of 8)
• Are Non-Euro Central Banks Constrained by Membership of the
EU? (contd.)
– EU rulings allow domestic central banks to freely implement
conventional monetary policies.
– However, the stimulus programs and unconventional monetary
policies undertaken by the central banks of non-Eurozone EU
states during both the global financial crisis and the European
Sovereign Crisis had to be conducted in coordination with the
European Central Bank. These are only special cases at the
unusual times of financial crises.
– Under normal conditions, non-Euro zone EU central banks are not
constrained by their countries’ membership of the EU.

The Federal Reserve System (1 of 4)
• The Federal Reserve System, also known as the Federal
Reserve bank or the Fed for short, is one of the largest
and most influential central banks in the world.
• The Fed is an independent entity that is privately owned by
its member banks.
• The Fed is subject to oversight from Congress that
periodically reviews its activities.
• The Fed supervises and regulates the nation’s financial
institutions and simultaneously serves as their banker.

• The Federal Reserve Bank of New York plays a special
role in the Federal Reserve System for several reasons.
– First, its district contains many of the largest
commercial banks in the United States, the safety and
soundness of which are paramount to the health of the
U.S. financial system.
– The second reason for the New York Fed’s special role
is its active involvement in the bond and foreign
exchange markets.

• The Federal Reserve System consists of the following:
– The Federal Reserve Board of Governors (FRB) which
mainly assumes regulatory and supervisory responsibilities
over member banks.
– The Federal Open Market Committee (FOMC): comprises
12 members— seven members of the Federal Reserve
Board of Governors, president of the Federal Reserve bank
of New York, and 4 of the regional Federal Reserve bank
presidents.
 Voting member in 2020:
https://www.federalreserve.gov/monetarypolicy/fomc.htm
 The FOMC convenes eight times a year to decide on the
interest rates and monetary policy.
• The 12 Federal Reserve banks that are located in major
cities throughout the nation
• Private U.S. member banks
• The Federal Advisory Council

Comparing the ECB and the Fed (1 of 3)
• Both the ECB and the Fed are entities that bind a number of
regional central banks together, 19 National Central Banks
for the ECB and 12 regional Federal Reserve banks for the
Fed.
• Both are independent institutions with a decentralized
structure
• The ECB supports political independence and makes
monetary policy decisions independent of political authorities.
• The Fed is highly independent of the government and reports
to the Congress.

• Important differences between the structure of the Eurosystem
and that of the Fed:
– The primary objective of the ECB is to achieve price
stability. On the other hand, the Fed’s dual mandate and
monetary policy objective is to deliver price stability and
consequently to support the macroeconomic objectives
including those for growth and employment. The Fed often
ignores the temporary effects of price changes since it
considers unemployment to be a much bigger priority.
– The budgets of the Federal Reserve banks are controlled by
the Board of Governors, whereas the National Central
Banks control their own budgets and the budget of the ECB
in Frankfurt.

– The monetary operations of the Euro system are not
centralized but conducted by the National Central Banks
while monetary operations are centralized in the Federal
Reserve System.
– The ECB is not involved in supervision and regulation of
financial institutions as these tasks are left to the individual
countries in the European Monetary Union, while the
Federal Reserve is involved in these areas.
– In financing fiscal budget deficits, the Fed buys government
bonds outright, while the ECB accepts them as collateral for
new loans to the banking system.

The Bank of England (1 of 4)
• The British central bank or the Bank of England (BoE),
known as the ‘Old Lady’ of Threadneedle Street, was
founded in 1694.
• As the second-oldest central bank in the world, the BoE
model has been the basis of most other central banks of
the world.
• The BoE is accountable to the U.K. Parliament. As the
United Kingdom is not a member of the euro area, the BoE
makes its monetary policy decisions independently from
the ECB.

• The Bank’s Monetary Policy Committee (MPC) is responsible for
conducting monetary policy.
• It has 9 members, of which 5 are BoE staff and 4 members of
the Committee are independent experts chosen from outside the
bank.
• The MPC meets over three days, eight times a year to:
– deliver price stability
– support the government’s economic objectives including
those for growth and employment.

• Interest rate is the main policy tool that the BoE uses for
controlling growth.
• However, as interest rates were cut close to zero since the
global financial crisis, many central banks including the BoE
have used quantitative easing as an unconventional form of
monetary policy.
• Quantitative easing aims to directly increase private sector
spending in the economy and return inflation to target.

• The government’s inflation target is announced each year by the
Chancellor of the Exchequer in the annual Budget statement.
• The minutes of the MPC meetings are published simultaneously
with the interest rate decision.
• This gives the BoE less autonomy in comparison to the Fed.

Global: Brexit and the BOE (1 of 3)
• Brexit refers to the United Kingdom’s intended withdrawal from
the EU in the wake of a 51.9% referendum vote on June 23,
2016.
• United Kingdom’s financial services sector provides 75% of
foreign exchange trading and supports half of all lending for the
EU with British investment banks providing 75% of all hedging
products.
• Brexit will have economic and financial repercussions on the
United Kingdom.
• The extent of the repercussions of Brexit depends largely on the
kind of future relationship that the United Kingdom will develop
with the EU.
• A hard Brexit arrangement, or no exit agreement with the EU,
would likely see the United Kingdom give up full access to
the single market. This would give Britain full control over its
borders enabling it to increase customs.
• A hard Brexit means that financial firms would not be able to
keep their “passporting” rights to sell services and operate
branches freely in the United Kingdom without the
authorization of the BoE.
• This would increase operational costs and supervision costs
as well as magnify the risk of unexpected breaks in the
provision of financial services such as loans to firms and
consumers.
• On the other hand, a soft Brexit arrangement would leave
the United Kingdom’s relationship with the EU as close as
possible to the existing arrangements.
• Hence, before leaving the EU by March 2019, an adequate
implementation period is desirable in order to give U.K.
and EU firms more time to make the necessary changes.

Structure of Central Banks in Larger
Economies
• We next examine the structure and degree of
independence of three other important and large central
banks:
—Bank of Canada,
—Bank of Japan
—People’s Bank of China

The Bank of Canada (1 of 4)
• The Bank of Canada (BoC) started in 1935 as a privately
owned financial institution but was turned into public
ownership since 1938.
• There are five Regional Bank of Canada offices in
Vancouver, Calgary, Toronto, Montreal, and Halifax.
• The BoC practices regulatory and supervisory responsibilities
over Canadian banks and reports its monetary policy
decisions to the House of Commons.
• While the Bank of Canada controls monetary policy, the
Bank Act amendment in 1967 gives the ultimate responsibility
for monetary policy to the government. When disagreement
arises, the minister of finance can issue a directive that the
BoC must follow.
• The main mandate of the BoC is to preserve the value of money
by keeping inflation low, stable and predictable.
• BoC adopts a dual key monetary policy framework comprising
inflation-control target and flexible exchange rate.
• The BoC decisions are announced eight times a year.
• The Governing Council of the BoC is the main monetary policy-
making body.
• Other major participants that assist the Governing Council in the
monetary policy decision-making are the Monetary Policy
Review Committee (MPRC) and the four economics
departments at the BoC.

• The monetary policy decision-making is a complicated process
that goes through the following five key stages.
– The BoC’s staff present their initial projection of monetary
policy to the Governing Council about two and a half weeks
before the interest rate decision. This projection uses
economic modeling and simulation to produce a base-case
or most likely scenario.
– A second major briefing occurs one week before the
decision. It includes an update on economic developments,
risks, business outlook, inflation, credit conditions, financial
market conditions, and monetary policy expectations in
Canada, the United States, and globally.

• The monetary policy decision-making is a complicated process
that goes through the following five key stage (contd.).
– Final policy recommendations are presented two days after
the major briefing and serve as the starting point for an
extensive discussion by the entire MPRC
– Deliberations take place Thursdays through Mondays and
decisions are taken on Tuesdays
– The BoC announces its decision on Wednesday and
publishes a press release that explains the reasons behind
its decision

The Bank of Japan (1 of 3)
• The Bank of Japan (BoJ), Nippon Ginko or Nichigin, was
founded in 1882 during the Meiji Restoration.
• It is headquartered in Tokyo and has 32 branches, the
largest being in Osaka. The Bank of Japan was
restructured after WWII in 1949.
• Up until the early nineties, the main monetary policy tool
used by the BoJ was the imposition of bank credit growth
quotas on the commercial banks.
• The Bank of Japan was not formally independent of the
government, with the ultimate power residing with the
Ministry of Finance until the Bank of Japan Act of 1997
changed this situation.

• The two main mandates of the BoJ are price stability and
financial sector stability in order to achieve stable and
sustainable macroeconomic growth.
• The Bank of Japan Act granted greater instrument and goal
independence to the BoJ.
• Monetary policy is determined by the Policy Board of the BoJ
which makes monetary policy decisions eight times a year. It
is regarded as the outcome of a bargaining process between
the government and the Bank of Japan.
• The Ministry of Finance has lost its authority to oversee many
operations of the BoJ, particularly the right to dismiss senior
officials but continues to have control over the part of the
bank’s budget that is unrelated to monetary policy.
• The BoJ lacks the autonomy to influence the yen exchange
rate.
• The BoJ acts on behalf of the Ministry of Finance which
instructs the central bank to conduct foreign exchange
intervention by buying or selling yen against foreign
currencies using government funds as well as the foreign
assets of the central bank.
• The 1997 Bank of Japan Act has reduced the scope of action
and the independence of the BoJ in comparison to its
European counterparts.

The People’s Bank of China (1 of 3)
• The Chinese central bank is known as the People’s Bank
of China (PBoC). The PBoC was founded in 1949 as a
result of the merger of three of the largest commercial
banks.
• As of 2017, the People’s Bank of China has the largest
financial asset holdings and foreign currency reserves held
by any central bank in the world.
• The main mandate of the People’s Bank of China is to
maintain the stability of the value of the currency, reduce
overall risk and promote stability of the financial system to
enhance economic growth.

• The PBoC reports to the Standing Committee of the
National People’s Congress.
• The Monetary Policy Committee (MPC) consists of 13
members comprising of the PBoC’s governor, two deputy
governors, and key representatives of various government
institutions.
• The MPC convenes on a quarterly basis to make monetary
policy decisions employing interest rates and reserve
requirements as the main policy tools.
• The PBoC imposes high reserve requirement which
sometimes reaches 18-20%.

• In earlier years, the PBoC held a three-percentage point
gap between deposit and lending rates which provided
easy profits for banks when deposits are turned into loans.
• The PBoC has been slowly liberalizing interest rates since
the turn of the century.
• While it still continues to publish benchmark deposit and
lending rates, the PBoC has now set banks free and
allowed them to pay depositors whatever interest they like.
• The PBoC remains one of the least independent central
banks.

Structure and Independence of Central
Banks of Emerging Market Economies (1 of 3)
• Emerging markets economies (EMEs) are economies of
Asia, Latin America, and Eastern Europe that are growing
rapidly and experiencing booming industrialization and
increased exports.
• Central banks of EMEs assume a more complex role in
comparison to their counterparts in industrial nations.
• Apart from central banking functions, banks of EMEs build
and reform the financial infrastructure, develop the financial
markets, and help with macroeconomic development. They
also manage foreign exchange reserves and implement
policies that promote growth and exports.

• The Reserve Bank of India (RBI), South African Reserve
Bank, Banco do Brasil, and Bank Negara Malaysia are
among the most successful central banks in EMEs.
• These central banks have successfully reformed their
banking sectors and supervised them to shelter the EMEs
from contagion during the global financial crisis.
• The central banks of EMEs pursue “financial inclusion
policies” which involve enhancing credit flow to productive
export-oriented industries and employment intensive sectors.
They also subsidize banks and increase access to affordable
financial services, promote financial education and literacy,
and support small local rural banks.
• To achieve these development roles, the central banks
often coordinate monetary policy decisions with fiscal
agents.
• The central banks in EMEs have less independence
because many decisions regarding foreign exchange,
developing financial institutions and markets, and
extending loans to priority regions and sectors are made
jointly with the government.

Should Central Banks be Independent? (1 of 6)
• During the last four decades, both theory and empirical
evidence have suggested that monetary policy is more
effective when a central bank is more independent. There
are two key dimensions of central bank independence.
– Goal independence which encompasses the
institutional characteristics that insulate the central
bank from political influence in defining its monetary
policy objectives.
– Instrument independence which refers to the ability of
the central bank to freely implement policy instruments
in its pursuit to meet the monetary goals.

• The case for independence:
– Potential inflationary biases that are likely to exert
themselves as a result of political pressure to boost
output in the short run. This tends to lead to a political
business cycle, in which these expansionary
monetary policies are reversed after the election to limit
inflation, thus leading to booms and busts in the
economy.
– The public generally distrusts politicians in regard to
making politically motivated decision and their lack of
expertise in conducting monetary policy.

• The case for independence:
– Politicians often opt for more central bank
independence when there is disagreement between
policymakers regarding unpopular macroeconomic
decisions. The politicians grant more independence to
the central bank in order to avoid public criticism. This
was the case in many EMEs that were forced to float or
liberalize their domestic currencies in order to integrate
with global financial markets.

• The case against independence:
– Macroeconomic stability can be best achieved if monetary
policy is properly coordinated with fiscal policy. As the
government is responsible for the country’s macroeconomic
performance, it must have some control over monetary
policy.
– Central banks are not immune from political pressures. The
theory of bureaucratic behavior suggests that the objective
of a bureaucracy is to maximize its own welfare just as
consumer behavior aims to maximize personal welfare.
Thus, the central bank can pursue a course of narrow self-
interest to increase its power and prestige at the expense of
public interest.
• The trend toward greater independence:
– The high correlation between macroeconomic and price
stability and central bank independence has led to the trend
to enhance central bank independence globally.
– To ensure that central banks do not deviate from their
socioeconomic goals, most central banks are made
accountable to their parliaments and required to become
more transparent about their operations.
– While the Federal Reserve has historically been more
independent than most other central banks, the structure
and the level of political independence of the European
Central Bank make it even more independent.

• The trend toward greater independence:
– The central banks that have been traditionally subject to the
intervention of the ministry of finance, such as the Bank of
England and the Bank of Japan, have also been granted
more independence in the 1990s.
– The Bank of England is among the most independent
central banks with regard to the central banks’ functions of
bank regulation and supervision, The Bank of England has
formed the Financial Policy Committee and invited a non-
voting member from the U.K. Treasury. Conversely, the U.S.
Financial Stability Oversight Council comprises all of the
principal regulators as members and the Secretary of the
Treasury as chairman.

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• Arguments for private ownership:

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• The three main decision-making bodies of the European

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Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

Copyright © 2019 Pearson Education, Ltd.

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