Central Banks and the Infrastructural Power of Commercial Banks: Retail Fast Payment in Sweden and Israel

• In Event: Reconfiguring State–Market Relations in Contemporary Capitalism

Abstract

Recently, scholars have rediscovered the concept of infrastructural power, which was originally coined by Michael Mann to describe the state’s capacity to penetrate civil society and to logistically implement political decisions throughout society. Infrastructural power is accessible exclusively to state agencies. Yet, non-state actors, such as commercial banks, credit card companies, digital platforms, and commodity exchanges, can also acquire such power through their specific position within the economy and with the support of state agencies. Previous scholarship examining the infrastructural power of businesses has primarily focused on how they acquire and exercise this power, but has failed to consider the way in which state agencies restrain them. This paper addresses the role of state agencies in actively shaping and restructuring business infrastructural power. Specifically, this study examines how central banks in Sweden and Israel sought to mitigate the infrastructural power of commercial banks in retail fast payment settlement systems. The comparative analysis yields two theoretical lessons. First, state agencies may enable non-state actors to hold infrastructural power, provided it does not jeopardize state interests. When central banks recognize the infrastructural power of commercial banks in payment and settlement systems as a source of risk to financial stability, central banks proactively restructure power arrangements and redesign the financial architecture. Second, there is no singular approach for central banks to constrain the infrastructural power of commercial banks. The analysis identifies two effective approaches: building a new central bank settlement infrastructure, as in Sweden, versus imposing structural conditions on existing commercial banks' settlement infrastructure, as in Israel. These findings underscore how, following the 2008 global financial crisis, central banks have emerged as active architects of payment and settlement infrastructure, promoting innovation, disciplining incumbents, and opening the market to new challengers, while reconfiguring the state-economy boundary.

Authors

• Daniel Maman

• Keren Borenstein-Nativ, Political Science Department and The M.A. Program in Public Administration and Public Policy, The Max Stern Yezreel Valley College, Israel