The government is not concerned about inflation

The government are either upset that the banking system increases the money supply (in which case they would take action to prevent it... which they have not) or they do not care about it. Assuming the government cares about inflation we can deduce that the government do not want (people and) banks to print money. That being the case it would make more sense for the government to either remove deposit insurance or prohibit bank inflation. If the government does not mandate sound banking then it is either inconsistent or unconcerned about inflation. If the government cares about inflation it should mandate sound banking... to be consistent. The absence of sound banking demonstrates that the government is unconcerned about inflation. The government doesn't care about inflation otherwise there would be (only) sound banking.