But the central bank’s incentives in terms of serving as a lender of last resort and holding capital and reserves would presumably still be wrong because of macro externalities that it would not take into account.
Ultimately, it is essential, in my view, to require the central bank to act in the national interest and not as a profit-maximizing firm and that the government back it in a crisis to ensure that it has the ability to take any required actions without being constrained by its own financial resources.