> Are people going to be okay with getting no interest and instead paying large-ish fees every month to cover the cost of bank branches, ATMs, debit cards, websites, money transfers, checks, and so on?

Looks at bank statements: .... Zero interest, check. High fees, check. I'm pretty sure... that's how it already is? What bank do you recommend? Hook a brother up.

> If depository banks are going to be very risk adverse they won't be earning much on the use of those demand deposits

You realize that this is how it used to be, right? Up until 1999. I don't know about you, but I got more interest and paid fewer fees back then...

I think this is oversimplifying things overall. Higher risk doesn't necessarily mean higher return in general, and definitely not when dealing with tremendously large pools of capital as depository banks do. There is a limit to how much total capital you can invest in a given level of risk, and what return you can actually achieve in practice for that level of risk. It's fallacious to think that regulating the types of risk depository banks can participate in and how much total risk they can take on would necessarily lessen their returns over the long-term in practice.

Moreover, on an operational basis banks are more profitable today than possibly ever. So, those fees and low interest rates are paying for more than all their services, by a wide margin. (At least as of the last time I looked into this.)