The Same, but Different: Central Banks, Regulatory Agencies, and the Politics of Delegation to Independent Authorities

Independent regulatory agencies are the institutional foundations of the regulatory state that, during the past 15 years, has gained prominence throughout Europe. This article studies the rise of independent authorities in European countries by comparing regulatory agencies and central banks. Delegation to independent central banks and to independent regulatory agencies is similar in many respects. In both cases, agents are deliberately made independent from political principals through a specific institutional design. Moreover, it has been argued that delegation to both central banks and regulatory agencies is linked to the need for policy-makers to improve the credibility of policy commitments, to the wish of incumbent politicians to tie the hands of future majorities, and to the extent to which the institutional contexts safeguard policy stability. Through an analysis of the formal independence of central banks and regulatory agencies in Western Europe, this article identifies an empirical puzzle that casts doubts on the accuracy of current explanations. Veto players and the uncertainty of incumbent policy-makers in respect to their re-election prospects matter for delegation to both central banks and regulatory agencies, but in opposite ways. Making sense of these anomalies is necessary to achieve a better understanding of delegation to independent authorities.

Capital Controls with International Reserve Accumulation: Can this Be Optimal ?

Motivated by the Chinese experience, we analyze a semi-open economy where the central bank has access to international capital markets, but the private sector has not. This enables the central bank to choose an interest rate different from the international rate. We examine the optimal policy of the central bank by modelling it as a Ramsey planner who can choose the level of domestic public debt and of international reserves. The central bank can improve savings opportunities of credit-constrained consumers modelled as in Woodford (1990). We find that in a steady state it is optimal for the central bank to replicate the open economy, i.e., to issue debt financed by the accumulation of reserves so that the domestic interest rate equals the foreign rate. When the economy is in transition, however, a rapidly growing economy has a higher welfare without capital mobility and the optimal interest rate differs from the international rate. We argue that the domestic interest rate should be temporarily above the international rate. We also find that capital controls can still help reach the first best when the planner has more fiscal instruments.

The Regulation of Foreign Banks in Switzerland (1956-1972)

The Swiss financial centre witnessed an important shift during the 1960s: the number of foreign banks and their importance in relation to the domestic banking sector significantly increased. Faced with this rapid development, Swiss bank representatives and political and monetary authorities reacted strongly. This paper investigates the evolution of the regulatory response by Swiss banking policy actors to the proliferation of foreign financial in- stitutions. In 1969, those reactions led to the adoption of a discriminatory regime, setting higher entry barriers for foreign banks than for domestic institutions. After examining possible reasons for the attractiveness of Switzerland to foreign banks, this paper will analyse the concerns and fears of the domestic banking sector and its regulators. In this regard, it appears that issues such as mere competition, preservation of the international reputation of the Swiss banks and anti-inflationary monetary policy were central to the chosen regulatory regime. Moreover, this paper shows that foreign banks were used as scapegoats in the evolution of the Swiss system of banking supervision. They were more tightly regulated, yet the general framework remained very lax.