The two functions were the deposit of capital (which is primary), and the ability to extend credit (which is secondary).

No.

The deposit of capital financial assets is irrelevant, except as a regulatory measure. If push comes to shove, SertaBank can work perfectly fine for that.

The central, absolutely vital, cannot-be-missed function of the banking system in an industrial production economy is the clearing of payments.

Certainly, not being able to trust ordinary on-demand accounts is a problem. Partly it is a political problem of ordinary people's money going poof. But that part is easily solved by printing physical tokens to replace the virtual tokens (this would cause a bank run, but that's another story...). A far bigger problem is that on-demand accounts are used to clear retail transactions. If they break down overnight, ordinary people cease to be liquid. That Is Not Good.

Taking deposits, extending credit and all that jazz is only interesting on the medium term - you can survive without credit for a month or two. You cannot survive without liquidity for a month or two.

So the payment clearing system must be protected at almost any cost. The credit creation system, OTOH, can in principle be allowed to burn to the ground (although that is probably not desirable in most cases...).

- Jake

Friends come and go. Enemies accumulate.