Who owns the Bank of England

Who do the central banks belong to? The answer is always one-sided

The Swiss National Bank (SNB) has had both public and private owners since it was founded. However, this hybrid form is becoming increasingly rare on the international stage.

The Central Bank of South Africa is to be nationalized. Parliament passed a corresponding law this month. This means that the club of those monetary authorities, whose owners also include private shareholders, is once again becoming smaller. As early as 2010, the Austrian government decided to take over the National Bank in full, having previously owned a 70% stake. Vienna justified the measure, among other things, with the fact that the owners of the central bank had previously also included private banks that were monitored by it; the controlled were therefore the controllers at the same time.

No ordinary shareholders

From a historical perspective, South Africa and Austria are trendy. At the beginning of the 20th century, around half of all central banks also had private owners. Shortly before and after the Second World War, however, nationalizations increased: New Zealand began in 1935, France and England followed in 1946, India (1949), Spain (1962), Portugal (1974) and other countries did the same. Today most central banks are fully state-owned. There are only a few countries left with private co-owners, such as Belgium, Japan, Greece, South Africa, Turkey - and Switzerland. In the USA, with its 12 regional central banks, and in Italy, only commercial banks are intended as shareholders.

Each of these countries has its own ownership structure, as shown by a Bank of England blog. The rules differ as to how the shareholders participate in the profits of the central bank, whether the shares are traded on stock exchanges and to what extent private banks are permitted as shareholders. It is probably due to this complexity that the ownership structure of central banks has always been the cause of absurd conspiracy theories. In some Internet forums, for example, the conviction that most central banks are controlled by the Rothschild family is particularly persistent. This is of course nonsense - and the reality is far less spectacular.

Central bank ownership structures tend to be seldom a source of controversy. There is a simple reason for this: the shareholders of central banks cannot be compared with the shareholders of an “ordinary” company. They have no influence on the company's core task, namely ensuring price stability or other macroeconomic goals. These monetary policy tasks are enshrined in law and beyond the control of the shareholders. Central banks with private shareholders act neither more expansively nor more restrictively than purely state monetary authorities.

For the functioning of a central bank, it is therefore of secondary importance whether there are private shareholders. This is the result of a study presented in 2016 by Bernhard Bartels, Barry Eichengreen and Beatrice Weder die Mauro. 35 OECD central banks were examined. It showed, among other things, that the ownership structure of the bank (state or private) has no influence on the profitability of the central bank. Anyone who suspects that central banks with private co-owners distribute less profit to the state are mistaken. According to the study, the opposite is the case: transfers to the state tend to be higher.

Protection of independence

Central banks with private owners therefore do not focus more on profit than purely state-controlled authorities. And they do not allow themselves to be influenced by the monetary interests of private shareholders in their distribution policy. If there are hardly any differences, the question arises as to why central banks, which perform a public task, have private shareholders at all. First of all, the answer can be found in history, especially since banknotes were still primarily issued by private banks in the 18th and 19th centuries. Second, it is often argued that private owners provide the monetary authorities with additional protection from political interference.

Both arguments also apply to the Swiss National Bank (SNB). Since it was founded in 1907, the SNB has been organized as a public limited company under special law. This legal mixed form combines "the double character of a private bank and a state bank", it said in 1904 in the Federal Council's message. The shares were distributed to the cantons and issuing banks as a replacement for the banknote monopoly that the cantons had ceded to the SNB. At the end of last year, the share of voting rights held by private shareholders was just under 22%, with the large remainder split between the cantons (61%), cantonal banks (17%) and other public corporations (1%).

Although the number of central banks with a private-public dual structure is decreasing, the SNB sees no reason to change anything in the legal form of a public limited company under special law. As it is said on request, the advantage of this structure is that it combines public and private elements: "While the public-law component expresses the mandate of the SNB in ​​the overall interest of the country, the private element helps to ensure its independence." This tailor-made legal form offers an adequate framework to perform the mandate as well as possible with the necessary independence.

It is therefore unlikely that Switzerland will follow the example of South Africa or Austria and nationalize the SNB in ​​the foreseeable future. The current legal form is hardly ever questioned politically, even if some historical reasons for the private shareholders - such as the compensation of the former issuing institutions - have become obsolete. The consensus for the status quo is also reflected in the central bank law, which was modernized in 2004. In the run-up to this total overhaul, only the trade union federation had just spoken out in favor of converting the SNB into a purely state-owned institution. The matter was hopeless.

Few central banks have private shareholders

The ownership structure of monetary authorities