A bank with deposit insurance should not be allowed to make a loan with reserves

People only want fiat cash because of taxation, otherwise banking would not be a threat to prosperity. Tax makes fiat cash valuable.

Because of deposit insurance there is no significant reason why a bank would not issue deposit accounts for free, without requiring payment of cash, other than the cost of maintaining the account and the risk of losing reserves if the money is taken out. The bank has no real need for reserves.

The people using fiat currency do not differentiate between cash and credit, so there is no premium for holding cash, deposit insurance makes cash have the same value as credit to the Government. The Government doesn't care that the banks are insolvent, it forgives them and has been exploited by the banks. Fractional-reserve banking is illegal because stealing is illegal.

Banks should not be allowed to make a loan which will result in the bank holding fewer reserves than it owes in demand deposits, to do so should be illegal. The banks should not be allowed to make loans because the Government provides deposit insurance. It should be illegal for a guaranteed bank (a bank with deposit insurance) to make loans.