central bank. a central bank's ability to control interest rates and to supply ample funds derives from the fact that nobody will refuse acceptance of money issued by the central bank, namely, banknotes and the central bank's current account deposits. through experience, modern nations have recognized the importance of credibility, established an organization that crystallizes this credibility, and entrusted the issue of money to that organization. in other words, even if an organization called a central bank has been established, a central bank will not be able to control money properly if its credibility is insufficient, and thus the central bank itself must strive to win such confidence. second, when a central bank tries to pursue its public purpose of the stability of money, it will do so not by law or administrative order but through transactions in the market. earlier i explained the bank's measures taken in response to the global financial and economic crisis, and all these measures were not forced by law and administrative order but were carried out in the form of market transactions. be it control over interest rates or provision of funds, they were conducted mainly by purchasing government bonds from the market or lending to financial institutions. as for cp, the bank purchases it from financial institutions by conducting auctions. because of this, a central bank is called the " bank of banks " or the entity " in the market. " v. the role of law how and in what form are law and the legal mind useful for the bank to carry on its mission? i will discuss three points. democracy and central bank independence : issues from the viewpoint of public law the first point is from the viewpoint of public law : the issue of " democracy and central bank independence. " " independence " means " to decide on one's own with a decision that is not reversed by others " ( chart 14 ). now, why is a central bank granted independence in a democracy? in general, monetary policy affects economic activity and prices after a time - lag. against such a backdrop, if monetary policy is conducted, based only on judgments about short - term economic and financial conditions, it will likely lead to a situation in which economic stability is impaired, as experienced during the previous inflations and the bubble. one major cause of the current global credit bubble was the prolonged low interest rates. when the problem started to grow in 2003 through 2004, the focus of many policy authorities and economists in the united states and europe was on neither inflation nor the bubble but rather how to stave

not to complicate the relationship of debts and claims due to new transactions, a business suspension order might become necessary. in the case of lehman brothers, in response to the u. s. headquarters'filing for chapter 11 on september 15, 2008, the financial services agency issued a partial business suspension order to its japan affiliate. september 15 was a national holiday in japan. on the ensuing first business day, september 16, lehman brothers'japan affiliate applied to the tokyo district court for the civil rehabilitation procedure, and the court decided on the start of the procedure on september 19. the bank of japan implemented measures as a central bank to secure financial system stability. since the bank was also a creditor of lehman brothers, the bank needed to carry out the measures by gaining the understanding of the court. moreover, on the settlement front, onesided default risk was mitigated through the yen - dollar pvp by the cls and securities dvp by the boj - net. furthermore, settlement proceedings and loss - share rules in case of insolvency were agreed in advance among market participants, and these functioned well. because of these various responses, payment and settlement of domestic transactions were conducted generally smoothly in japan. while it might sound unusual, it is of critical importance that bankruptcy be conducted skillfully without causing any trouble to the financial system as a whole. in the current financial crisis, lehman brothers filed for insolvency, while many financial institutions in the united states and europe were nationalized or received public capital infusion. in response to this situation, the reflection emerged that a framework for orderly disposal of a financial institution with a significant impact on the financial system was insufficient. 9 since the framework for disposal was insufficient, a case occurred such as lehman brothers – which could not be disposed of while maintaining important operations and which was forced to liquidate – or, adversely, cases occurred in which the authorities judged part of financial institutions as " too big to fail, " and eventually many taxpayers had to bear the burden. if the institutions that should fail do not go bankrupt, moral hazard will intensify and the vitality of the financial system and the economy will be eroded from a longer - term perspective. the ability to dispose of failed financial institutions in an orderly fashion is quite a critical factor in strengthening the financial system. in particular, with respect to internationally active financial institutions that are likely to be subject to the problem of " too big to fail, " difficult legal issues