Sept. 21 (Bloomberg) -- ``Dear customer, congratulations on your new Hokey-Cokey Bank Plc deposit account! You'll enjoy substantially higher interest rates than you can get anywhere else, because we'll be betting your life savings in the local casino. Should the roulette ball land on red rather than black, no worries! The U.K. government guarantees your money!''

Anyone who regards the Federal Reserve, the Bank of England and the European Central Bank as independent, insightful and in control has had their confidence shaken by the recent events.

The U.S. central bank had to cut its key lending rate by half a point, and reduced the penalty it levies on banks that need emergency funds. That prompted some wag to mock up an advertisement of Chairman Ben Bernanke in a toy helicopter poised to shower the economy with dollar bills. The picture carries the tagline ``Warning: cannot really prevent a severe recession.''

In Europe, a promised rate increase to curb inflation had to be put on ice. French President Nicolas Sarkozy immediately took credit for restraining the policy makers, to the fury of ECB President Jean-Claude Trichet.

And Bank of England Governor Mervyn King has been bounced into an embarrassing U-turn on his willingness to lend three- month money to commercial banks in exchange for accepting their tarnished mortgage bonds as collateral. He has also had to underwrite deposits at ailing mortgage lender Northern Rock Plc, triggering front-page headlines questioning his job security.

Involuntary Decisions

Let's be clear about the involuntary nature of these decisions. The Fed didn't want to cut borrowing costs; Bernanke doesn't want the ``Helicopter Ben'' tag to stick. The ECB wanted to raise its lending rate and avoid any accusation that it bowed to political pressure. And the Bank of England was determined not to underwrite what King called ``risky behavior'' by profit- chasing mortgage lenders.

Central bankers are bumping up against the limits of their independence, which, lest we forget, is a relatively new amplification of their powers. Recent events should serve as a reminder that central-bank independence ``is not set in stone,'' as former Fed Chairman Alan Greenspan put it in his memoirs, published this month.

Greenspan let one very scary-looking cat out of the bag during the dog-and-pony shows accompanying his book launch. Asked by the Financial Times why he didn't push up borrowing costs more quickly once it was clear his 1 percent emergency rate had averted the risk of deflation, Greenspan had this to say:

False Impressions

``The presumption that we were fully independent and have full discretion was false,'' Greenspan said in an interview published by the newspaper on Sept. 16. Raising rates faster and sooner would not have been acceptable ``to the political establishment,'' Greenspan said.

So Greenspan has revealed one of the dirty little secrets of central banking; policy makers don't just keep a weather eye on what their political masters are likely to think of their decisions, they also sometimes alter their behavior in light of those implications.

Trichet was still in the middle of his Sept. 6 press conference explaining the ECB's decision to keep policy on hold when Sarkozy, who had been sniping from the sidelines for weeks, said the decision ``proves that by talking and debating, there can be small progress.''

When Bloomberg reporter Gabi Thesing read out Sarkozy's comments from her Blackberry, Trichet looked stunned. His face turned to thunder. ``We are independent because the treaty calls upon us to be independent,'' he said, suffocating the ripple of giggles running round the assembled journalists.

Not So Vigilant

The suspicion lingers, however, that with annual money- supply growth running at 11.6 percent, compared with the ECB's 4.5 percent target rate, Trichet was all too aware that carrying out the rate increase pledged by his use of the words ``strong vigilance'' would give Sarkozy additional ammunition in his campaign to grab a political slice of the monetary-policy pie.

In the U.K., television pictures showing savers lining up to pull their money out of Northern Rock Plc last week are the stuff of central bankers' worst nightmares. King looked as if he hadn't slept for a week when he appeared before the Treasury Select Committee yesterday.

Last week, King wrote that supplying emergency funds risked encouraging ``excessive risk-taking, and sows the seeds of a future financial crisis.'' This week, the Bank of England said it will auction 10 billion pounds ($20 billion) of three-month money and accept mortgage securities as collateral.

Free Speech

Asked by a committee member whether he had been leaned on to change tack, King dodged the question by pledging that he hadn't allowed his decision to be influenced by any external pressure, without commenting on whether the government or his fellow regulators had sought to apply any pressure.

``I give you my personal assurance that I would never do anything unless I thought that it was the right thing to do,'' he said. ``Independence is not just about legislation, it's about having people in the bank who will do the right thing and not just what people ask them to do.''

If the U.K. money markets remain petrified, with banks still unwilling to lend to each other, King and his eight fellow policy makers will find it very hard to resist calls to cut the benchmark lending rate when they next meet on Oct. 4. The ECB may have missed its last opportunity to tighten, and the Fed will be expected to launch another lifeboat.

The money markets are now in the monetary-policy driving seat. It won't be easy for central banks to wrest back control of the wheel. And the ride is likely to stay bumpy for a while yet. Let's hope we don't crash.

To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net

Last Updated: September 20, 2007 19:29 EDT