The Government intervene in the banking market, by guaranteeing deposits, which gives investors confidence to trust the banks. This enables the banking system to accommodate repeated recycling of the cash deposits, thereby increasing the quantity of bank deposits, which affect prices.
Bank deposits are a Government liability.
The taxpayer guarantees bank deposits. The problem is deposit insurance not Fractional-reserve banking, which might exist in a free market.
Everywhere in life there are risks, we are free to take risks and to suffer the consequences if the the rewards aren't commensurate. The problem arises when those risks are externalised to third parties that were not aware of, and did not consent to becoming liable. The risks of banking should be borne by the customers of the bank and no one else.
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