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  • Series: Research Handbooks in Financial Law series x
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Peter Conti-Brown

The experience of institutional change at central banks in the United States has been unique and influential. In this chapter, financial historian Conti-Brown traces the singular experience of central banking in the US from the Banks of the United States through the 2008 financial crisis. Particular attention is paid to the rise and fall and rise and fall of the Banks of the United States; the creation of the Federal Reserve System; the changes to the Fed during the Roosevelt Administration and especially under the leadership of Marriner Eccles; the Fed-Treasury Accord of 1951, seen by some as creating the modern independent Federal Reserve, but in fact much more of a tentative understanding at the time. The chapter also analyzes various dynamics between US Presidents and Fed Chairs, perhaps the most important relationship in determining what kind of central bank the US will have. It concludes with a reflection on how the 2008 crisis has changed the Fed and its political relationships.

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Forrest Capie and Geoffrey Wood

In this chapter we examine how the Bank of England’s objectives emerged through a mix of evolution, instruction, and reaction. All three were involved. The monetary objective evolved from the Bank’s initial obligation to be able to convert its notes into gold on demand. This was formalised in 1844, and thereafter the numerous changes did no more than change the form of the monetary objective. The financial stability objective was adopted by the Bank in response to outside argument and the pressure of events; but it had from time to time stabilised the system before that, on an ad hoc basis and without formal explanation or justification. It then drifted into being involved in the workings of the banks that comprised the British banking system, and then through legislation acquired increasingly formal and detailed responsibilities for the conduct of these banks. A further complication must be added. The ideas that guided the Bank’s actions may appear to have come from the private sector or government, but there was often discussion and a flow of ideas between Bank, government, and private sector, before a mutually satisfactory conclusion and policy was reached.

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Hideki Kanda and Toshiaki Yamanaka

This chapter examines the governance structure of the Bank of Japan ("BOJ"), the central bank in Japan, and the legal setting for the BOJ's monetary and prudential policies. It describes the BOJ's unconventional monetary policies and power to undertake on-site examinations of financial institutions. The Bank of Japan Act was substantially amended and modernized in 1997, and under this new regime, the BOJ has been implementing a series of unconventional monetary policies from 1999 to present; Zero Interest Rate Policy (1999–2000), Quantitative Easing Policy (2001–2006), and Quantitative and Qualitative Easing Policy (2013–present). How legal settings for the central bank interact with the bank's monetary and prudential policies continues to be a topic of academic inquiry, and calls for further research.

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Raj Bhala

In the post-British Raj Era, financial liberalization is a hallmark of Indian banking regulation. The RBI is a focal point for change. The pace of change, however, is measured thanks to the legacy of Nehruvian Socialist-style controls, and to the complexity of Indian bank structure. Both payments and FX regulation exemplify this cautious approach to legal and policy reform. Underlying financial liberalization are long-held suspicions in India about freewheeling western-style banking markets. The RBI seeks to develop a modern banking system while ensuring the poor and emerging middle class are not financially excluded from that system. That means the cautionary approach to reform that has characterized the RBI will endure.

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Juliet Johnson

The chapter begins with the Bank of Russia’s origins, from the waning days of the Soviet Union through the passage of the revised Law on the Central Bank in 1995. It then explores the international central banking community’s pivotal role in the Bank’s transformation, focusing on monetary policy and banking supervision. The Bank of Russia’s embrace of central bank independence, price stability, and commercial bank reform emerged sequentially, based on both persistent community exposure and adverse experience. I end by discussing how the Bank of Russia dealt with the fallout from the global crisis and the Russian government’s financial nationalist turn, particularly since the Crimean annexation and the imposition of the Western sanctions regime. The Putin government has increasingly put the Bank of Russia in a position where its liberal, internationalist inclinations and its national responsibilities clash.

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Zhongfei Zhou

The People’s Bank of China (hereinafter PBOC) is facing several challenges in a new wave of financial reforms in China. The PBOC’s independence is always criticized. Taking into account the Chinese political system, however, central bank independence is less significant in China than in western countries. By contrast, legal provisions relating to the PBOC’s accountability to the National People’s Congress, the State Council and the Judiciary need to be improved. To fulfil its financial stability mandate, the PBOC should be provided with law-based financial stability instruments. The importance of a central bank in financial regulatory system has increasingly been recognized across countries after the global financial crisis. It is recommended that China’s Coordination Meeting System be legally upgraded to become a financial stability oversight committee, established within the PBOC, which brings together the expertise of central and local financial regulatory agencies and even independent experts in relevant fields. With respect to China’s deposit insurance scheme, priority should be given to preventing runs, and the moral hazard consideration should be secondary to preventing runs in the trade-off between preventing runs and limiting moral hazard.

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Xiangmin Liu

This chapter employs the basic framework of modern evolutionary theory to understand the evolution of central banking both around the world and in China. The key mechanism of evolution involves a three-stage process: differentiation, selection, and amplification. This evolutionary algorithm selected previously dominant central banking models around the world, including the ones practiced in China over the past century. The previous paradigm of central banking was that of the "single mandate", ie, the exclusive focus on achieving and maintaining monetary stability. The global financial crisis induced a dramatic change in the environment that central banks operate in, which rendered the single mandate model obsolete and demanded a new and fitter model of central banking to cope with new financial and economic realities. A "dual mandate" model of central banking, which re-focused central banking on financial stability as well as monetary stability, emerged as the new paradigm. Macroprudential policies became the latest weaponry at central banks' disposal to accomplish their newly mandated dual missions. China's reform era central banking development bore the same evolutionary logic: the People's Bank of China evolved from a soviet-style state bank to the country's designated central bank with a heavy planned economy legacy and then to a more modern central bank following and advocating market principles and converging with (but also differentiating from) international practices, reflecting fundamental changes in the country's underlying economic and political conditions and changing demands for central banking. China's latest experiences dealing with its own domestic financial headwinds, in addition to international developments, helped spawn a new round of central banking and financial regulatory reforms there.

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Chiara Zilioli and Antonio Luca Riso

This chapter focuses on the scope of the principle of central bank independence in the legal framework of the European Union, which has established such principle at constitutional level for both the European Central Bank (ECB) and the national central banks (NCBs) to ensure the highest level of legitimacy. On the depth of central bank independence, the chapter offers a review of the debate between those who are concerned that monetary policy decisions have been taken out of democratic control, and those arguing that only a central bank that is independent from political power can maintain a stable currency for the benefit of the citizens and that the ECB’s accountability has been ensured through several legal requirements and practices . With regard to the scope of central bank independence, this chapter analyses the question whether this principle extends to additional tasks which have been conferred, in particular after the crisis, upon the NCBs and the ECB, including in particular micro-prudential supervision, and whether the conferral of these new tasks could jeopardize central bank independence.

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René Smits

The author provides a critical description of the forays into unconventional monetary policy measures by the European Central Bank (ECB) and discusses the court case on the ECB’s competences on one such unconventional measure, Outright Monetary Transactions (OMT). The legal basis of the non-standard measures adopted since the beginning of the crisis, from collateral widening through negative interest, forward guidance and long-term refinancing to quantitative easing, are discussed, with a special focus on the situation for (banks in) the EU Member States whose governments have been financially supported (e.g., Greece). The author finds that the ECB’s mandate has been stretched, but not too far, in the crisis circumstances although, in normal times, the economic-policy role taken might be ultra vires. The ECB itself should assume the role of provider of Emergency Liquidity Assistance (ELA) now that banking union has given it wide-ranging prudential powers, notably over the most significant banking groups in the Euro Area.