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Under a central bank system that did not have FDIC insurance. You are deliberately eliding my point. Not cool. And the idea that a completely free market banking system where "narrow banks" can literally compete with the Fed makes any sense in the modern world is insane. Go to Somalia. Have fun staying alive and keeping any of your money.

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On the contrary, FDIC encourages more reckless banking. Customers chase riskier high interest deposits knowing they cannot lose the deposit and that the 'insurance' is already baked in at a public loss if their gamble loses. The customer has little incentive to monitor underlying banking of these insured funds. This isn't just my words, the fdic has written of the moral hazards themselves. And the same principle applies to the central bank encouraging risky bank behavior by bailing them out as a lendor of last resort.

Most people have better things to do than individually monitoring the underlying banking of insured deposits. And they lack the expertise to do so anyway (I certainly wouldn't know how to accurately price or create a CLO, some complex structured note, swap, CMBS transaction, etc.). That's why we have regulators, and the benefit/cost ratio is phenomenally high.

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