If either a crash is tolerable (a crash is not bad) or if there is no fractional reserve banking then there is no reason for deposit insurance. Deposit insurance is to prevent a crash as a result of fractional reserve banking. Fractional reserve banking creates a crash unless there is deposit insurance.
If a crash is bad and fractional reserve banking exists then there will be deposit insurance.
It is the fault of fractional reserve banking that we have deposit insurance. Banks can’t fail because of fractional reserve banking.
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