It's bad for the currency if banks are protected

Deposit insurance is not without negative consequences. Deposit insurance means that banks are immune from bankruptcy. This means that whatever a bank does it cannot ever go out of business even if it makes bad loans with customer deposits. The consequence of this is that the currency becomes inflated with unfunded (but government-protected) bank liabilities. The negative consequence of deposit insurance is (the possibility of) inflation. If there is no deposit insurance banks would have no ability to cause inflation. Banks without deposit insurance cannot cause inflation... they can only do so if they are in the public sector.