Banks are not subject to the pressures and rigours of the free market

Because of the nature of fiat currencies and deposit insurance, banks are not prevented from (there is no disincentive against) having more deposits than there are reserves, as would otherwise be the case in a free market. Banks are not held to the natural disciplines of the market, they are not able to fail, they do not provide a service like a normal company. We get free banking so that the bank can loan the money without having to borrow it from another bank, they would have no interest in doing this (for free) without deposit insurance. Receiving deposits enables them to increase the money supply, which subsidies bank accounts, only because of their ability to increase the money supply are banks likely and willing to do this, it is an unnecessary compensation that we (citizens) receive. If people instead paid for their banking at banks with full reserves, this would not happen. But even if people use these banks, they, the banks, should not (exploit the insurance and) repeatedly loan the money out anyway. When banks loan money it has not come from someone willing to be without the money for a period of time, it has come from bank deposits, so in that sense, it has not really been loaned. Money received (for repayment) from a bank is not a loan because no one has ceased to have use of the money. A loan is where the ownership of an object has switched for a period of time, but with a bank no one owned the money to begin with.

If, on the other hand, we consider the bank to have true ownership of reserves then the depositor has nothing more than bank credit and no claim on the deposited funds. The reserves of a bank are not truly owned by the bank, they are part of the State and not part of the money supply; the quantity of reserves does not alter prices. When a bank 'loans' money the money for the loan comes from the reserves which are not part of the economy and it is for this reason that the money supply (and the price of goods and services) increases when a loan of this type (by an insured bank) is made. Banks are not part of the free economy because reserves held in the bank do not influence prices, the degree of insolvency is irrelevant.