There's still a need for some degree of attentive supervision for deposit-only institutions to make sure that they're actually investing their customers' money

There's still a need for some degree of attentive supervision for deposit-only institutions to make sure that they're actually investing their customers' money in liquid, secure, assets. In the absence of regulation, the incentives for management would be to invest customer deposits in high-yield, and therefore high risk and/or illiquid, assets. Customers need to be protected against losing their deposits because management invested everything in junk bonds or real estate. There's also the risk of embezzlement to consider. Non-bank accounting controls might not be adequate to protect large volumes of consumer deposits from theft. The fragility of (unregulated) cryptocurrency exchanges paints a very clear picture of what would happen if deposit-only institutions were allowed to operate without any supervision.