Deposit insurance should not be for banks which repeatedly lend customer deposits, only banks which keep the entirety of deposits in reserve should have the benefit of deposit insurance.
There is no reason to allow banks to inflate the money supply, if they have deposit insurance. A bank with deposit insurance should be prevented, by law, from on-lending customer deposits, so that the money supply does not increase.
Failure to regulate the banks in this way will result in an even higher quantity of deposits being monetised in the eventually of a significant bank run. Fractional-reserve banking should be illegal for banks with deposit insurance. Having insurance should mean that full-reserves are required for any bank.
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