A central and unanswered question re: banking in democratic societies of the 21st century is what function does it serve and who is its master?

Banks don’t get created through the customary business formation process. They are not founded by one or more parties who have developed an idea responsive to an existing market or created a new market on their own (i.e. AMZN, AAPL, INTC etc.). They don’t go out of business because their products and services were not responsive to a market’s demands.

Banks are commoditized institutions, charted by governments and funded by a nation’s tax base (i.e. Central Banks such as Federal Reserve) and via depositors. At their core, they are stewards of a nation’s economic policy. Empowered by governments with the capacity to hold depositors cash and fund a nation’s commerce with those deposits and tax revenues, based on their professional discretion re: appropriate risk/reward decision models.

Banks fail because they make bad decisions re: where to invest these funds and who they invest them with. The losses are borne by the investors and the taxpayer.

On sunny days, JPM and BoNY Mellon perform a service for a fee. They’re reliable and have the necessary liquidity to fund the process of being the clearing banks for tri-party repo’s (repurchase agreements). It’s Mary Poppins for everyone.

Then market risks escalate rapidly and the repo function becomes a choke point that can fell the universe. Manning the choke point is JPM & BoNY Mellon, making decisions about their own welfare, for their balance sheet’s sake. This produces the September 2008 scenario - seizure and drying up of liquidity as the two demand onerous amounts of premium collateral to support the repo cash funding.

Given Europe’s long running saga of sovereign debt failures amidst nascent monetary union, the US’s failure to genuinely resolve and clear any of its own debt troubles and China’s unrealized risks from shoddy lending, catastrophic economic risk remains prevalent. In this light, a liquidity staple such as tri-party repo clearing belongs in the hands of disinterested parties that can assure it functions rather than manage personal enterprise risk and margin objectives.

The financial traumas of the last three years make it clear that banking will operate exclusively in its own short term interests, to the peril of the larger society’s well-being. That provides for a cyclical time bomb. Without uninterested 3rd party clearing and providing of basic overnight financing, such as used in tri-party repos, the lung machine is constantly at risk of demanding unsupportable sums for its role in providing overnight air when the oxygen supply abruptly cuts out on us.