A lot of those regulations are in there to patch up the unintended side effects of other regulations.

Eg FDIC makes depositors not monitor their banks' riskiness. So they piled in other regulations.

The worst offender in the US used to be unit banking requirements, ie branch banking was all but verboten. So most banks used to be horribly fragile, tiny, single branch entities.

> makes depositors not monitor their banks' riskiness

It's impossible for depositors to do this. It's almost impossible for national banking regulators to do this, but at least they're in a position to try.

Deposit insurance is a requirement for a functioning system. You cannot ask ordinary members of the public to shoulder the risk for the system.

It is very possible. In fact, it happened.

There were very successful banking systems without deposit insurance. Less crisis prone than our current systems.

I can provide some sources, if you are actually interested.

See eg https://www.alt-m.org/2016/08/12/capital-and-cash-reserves/ but I can look for something more appropriate:

> Of course, not all banks catered to depositors whose primary interest was safety: there was a market for riskier bank deposits also. But, despite what apologists for central banking and deposit insurance claim, it was not especially difficult to tell safer banks from less safe ones. The problem in places like the U.S. before 1934 and England before 1826 was not so much one of distinguishing relatively safe banks from relatively risky ones, but one of legal restrictions that prevented well-capitalized banks from emerging in many communities. In the U.S. the restrictions consisted of laws preventing branch banking; in England they consisted of laws preventing English banks other than the Bank of England from having more than six partners. (In 1826 other public or "joint-stock" banks were permitted, but only if they did not operate in the greater London area–itself a major limitation; while in 1833 other joint-stock banks were admitted into the London area, but only provided they gave up the right to issue banknotes.) These regulations limited the capitalization of U.S. and English banks while at the same time limiting those banks' opportunities for financial diversification–a recipe for failure. In both instances the regulations were products of politicians' catering to rent-seeking behavior on the part of banking industry insiders. Yet the resulting, unusual frequency of bank failures and substantial creditor losses stemming from such failures helped to sustain the belief that fractional reserve banking could only be made safe by means of further government intervention.

> Where laws did not prevent banks from diversifying their balance sheets, especially by establishing widespread branch networks, or from securing large amounts of capital by "going public" (or, in the case of some Scottish and most Canadian banks, by making shareholders liable beyond the par value of their shares, which from creditors' point of view is equivalent to having more capital), bank failures have been relatively less common, and losses to creditors stemming from occasional failures that did occur have been relatively minor. Indeed, even such a spectacular failure as that of Scotland's Ayr Bank did not ultimately prevent the bank's creditors from being paid in full, without need for any sort of bailout.

That pre-war environment is a very different world from the financial crisis of 2008 and the Northern Rock event. Or Iceland. In the end the UK central government had to bail out local governments with uninsured deposits in the Icelandic banks: https://www.independent.co.uk/news/business/news/uk-councils...

They didn't have to. Especially if they set a few precedences of NOT bailing out.

If you want government guarantee, you can already invest in government debt.