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Banks are no longer technically banks, but "credit institutions" with the privilege of creating credit on the base of an amount of regulatory capital.

Deposit taking institutions such as credit unions also exist, but these create no credit in the way that banks do, and have no role in the clearing system other than as clients.

So credit creation is a Bank's primary function, and deposit taking is ancillary to that purpose.  The clearing of credit obligations is the same thing as the clearing of payments, and it is essential to the operation of a modern economy both in terms of the circulation of goods and services, and the creation of productive assets.

The matter of long term funding of productive assets is where secured loans and counter-balancing deposits come in. It is this part of the system which is imploding and draining credit out of the system, which adversely affects the flow of working capital as well.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed May 6th, 2009 at 06:50:15 PM EST
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