Depositors are not investors in a bank. They just want a checking account and to make payments. Why should they have to waste time spreading $250K chunks around multiple banks? It's inefficient.

Equity and bond investors are the only ones who should lose their shirts when a bank fails.

If we're the have a distributed payment system, then full deposit insurance and a flexible lender of last resort is the only sensible approach.

The alternative is everybody has their payment accounts at the central bank, which will then mean, by accounting identity, that the central bank will end up as the only depositor in every bank.

Which given that the central bank is the regulator who should be checking asset quality is perhaps the way to go. That way when a bank fails, the entity responsible for ensuring they don't stands the loss.

We need heterogenous banks who will lend on different criteria. Otherwise we'll end up in the situation where only the propertied will get bank liquidity.

However heterogeneity means that some banks, like SVB, will inevitably fail when they get it wrong.