I fear banking would become like government run healthcare or health insurance. I’m not quite sure what it would look like, but it wouldn’t be great.
There is no profit motive and it’s a very technically simple offering that the Fed already supports or will soon support with FedNow: I have a table of people and balances, and I only support transactions between the two.
If a bank can’t figure out how to compete with 0% interest with no value add to attract deposits, IMO they shouldn’t exist.
Regional and local banks are far more likely to originate loans to local residents, especially for unique purposes. If somebody in flyover country wants a loan to start a business, it basically has to be a cookie cutter franchise or a large existing customer for a big coastal syndicate bank to even look at it. This is one reason, although not the only one, why outfits like Dollar General are eating the downscale retail market when it used to be local general stores.
The advent of online banking and digital payments added enough value that there was really no reason to continue to be unbanked or underbanked for most people. But IMO banks have begun to take depositors for granted by offering poor interest rates and exposing us to more risk than necessary (certainly more than justifies checking or savings rates). With the recent spat of bank failures roughly coinciding with crypto, which also provides online banking and digital payment functionality, the Fed/banks need to recognize that there is a real risk that depositors will opt back out of traditional banking.
I think a shift off the dollar and onto crypto would be much worse (personally, but also for banking) than the Fed offering a path to digital mattress stuffing of the USD, because at least with that they can still influence monetary policy and keep people on the dollar. I also suspect, but have no data, that our shift towards structurally low rates and high asset prices over the last half century was partially influenced by banks’ relative share of the monetary supply increasing so much that too many deposits are stuck chasing yield/credit is too accessible for activities perceived as low risk: so if some deposits shift onto a Fed narrow bank, banks will at least find it easier to loan and offer interest at higher rates. But even beside that, I as an individual should not be obligated to deposit my money into a banking system that gives me poor risk:reward - and when better options exist, I might not. So the banks and Fed better figure out something better than crypto or a fireproof safe.