> One might argue that if it is the central bank, or the goverment, that underwrites all the risk There are basically three groups of people that can shoulder

> One might argue that if it is the central bank, or the goverment, that underwrites all the risk There are basically three groups of people that can shoulder the risk - the bank owners, the government, and people with money in the bank. Ordinarily it's the bank owners that shoulder the risk, because the government requires them to keep a buffer of "reserves" that get eaten through when loans aren't repaid. The government does insure the depositors if the shareholders lose all their money. You could of course remove those regulations but it seems like you'd still have a moral hazard problem, since the losses of excessive risk-taking still aren't borne by those taking the risks (since they'll be passed to the depositors). Some of these issues seem intrinsic to banking where you're taking risks with other peoples' money almost by definition.