Central bank independence mitigates direct political intervention into their policy objectives. Independence refers to the “how to” achieve its policy objectives: A central bank is free to make decisions about the tools it employs, subject to legal constraints that are set out in its charter.
Otherwise, this approach would essentially rely on self-policing by banking entities. A second alternative would be to establish definitive bright lines for determining whether an activity is permitted or prohibited. This approach would be very difficult in practice, at least with current information and data, because of the many asset classes, business models, and transaction types covered by the statutory provisions.