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Nevertheless, that function could not exist without the capital (8%). Ancillary comes from anchor, no? The capital allows to resist to unexpected withdrawals, without borrowing in despair from the central bank.
Historically banks lent from what they had in capital. No more capital, no more lending. Applied to central banks, that was the idea of the gold standard.
It is obsolete, but as you point out, "long term funding of productive assets" is imploding because credit was given in a self feeding loop to the financial system, a bit like when an amp feeds a microphone, that makes the loudspeaker scream even louder, etc...
What has been missing is the notion of PRODUCTIVITY, indeed. Instead short term profits to "credit institutions"(whatever that means, $12 billion of TARP gift through AIG in the case of Goldman) have been confused with long term profits to society.
So society stopped being profitable, basically... Ethics is the way out.
No, it comes from ancilla which is Latin for handmaiden.
1667, "subservient, subordinate," from L. ancillaris "relating to maidservants," dim. of ancilla "handmaid," fem. dim. of anculus "servant," lit. "he who bustles about," from root of ambi- "about" + PIE *kwol-o-, from base *kwel- "move round, turn about, be much about" (see cycle).
Anyway, the initial point was whether deposits were still important or not. As a gentleman above pointed out, banks are in charge of CREATING credit nowadays, that means creating money outright. Most of the money coming out of banks is made that way, so some will view credit as the most important function of banks.
But that function cannot happen without banks having SOME capital. (The capital standards were developed by the international organization called the Bank for International Settlements, based in Basel, and famous, long ago for being kind to Nazis). Indeed if some loans fail, capital is needed.
Further, there is a distinction to be made between short-term credit secured by intrinsically valuable stuff (which essentially means the payment clearing system), short term credit that is either unsecured or secured with stuff that has no obvious intrinsic value (e.g. brokers' loans secured by stocks) and long-term credit (whether secured or unsecured).
Friends come and go. Enemies accumulate.
The distinction between law and regulation is interesting in political philosophy. Regulation is mid way between law and interpretation.
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