"Zero-Interest Policies as Hidden Subsidies to Banks" (Economist's View - Mark Thoma via Naked Capitalism)

Axel Leijonhufvud argues that political independence of central banks is "impossible to defend in a democratic society":

Shell game: Zero-interest policies as hidden subsidies to banks, by Axel Leijonhufvud, Vox EU: The two pioneers of modern monetary economics – Irving Fisher and Knut Wicksell – were passionately concerned to find monetary arrangements that would insure against arbitrary redistributions of income and wealth. They saw such distributive effects as offenses against social justice and consequently as a threat to social and political stability. 

Fisher and Wicksell thought that price level stability was a sufficient condition for avoiding distributive effects. In this they were in error. A hundred years later, the motivating concern for their work has long since disappeared from monetary economics.

But the error survives. For example:

• The Fed is supplying the banks with reserves at a near-zero rate. Not much results in bank lending to business, but banks can buy Treasuries that pay 3% to 4%.
• This hefty subsidy to the banking system is ultimately borne by taxpayers. Neither the subsidy, nor the tax liability has been voted for by Congress.

The Fed policy drives down the interest rates paid to savers to some small fraction of 1%. At the same time, banks leverage their capital by a factor of 15 or so, thus earning a truly outstanding return from buying Treasuries with costless Fed money or very nearly costless deposits.

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