>And, also, loan losses would need to be covered out of other profits by banks But, like, what if they aren't? Who holds the bag when losses exceed profits? Th

>And, also, loan losses would need to be covered out of other profits by banks But, like, what if they aren't? Who holds the bag when losses exceed profits? That is of course exactly the case where deposit insurance comes in handy. So I'm pretty sure you still need it. Your model protects specifically against losses due to time mismatch between deposits and loans, but there are other ways that loans can go bad!