[dgb23]

Am I reading this right? They expected this mechanism to be too efficient for regular, already established banks to compete?

So a safer, more efficient mechanism for banking is declined in order to keep the established banks competitive?

Isn't that sort of outrageous?

[em500]

You're in good company if you find that outrageous. But the (speculative) reasoning is not so much to keep them competitive, but to keep borrowing cheap. In the real world, lots of people want to borrow money for 3, 5 or 10 years for their business or 10, 20, 30 years for their mortgage (and preferably at fixed rates), while very few people want to lend out money for such long terms at fixed rates. So the way banks handle this is pool together lots of small short terms loans like deposits and count on the observed regularity that they usually don't withdraw their money simultaneously (SVB notwithstanding). If the relatively stable and cheap small deposits are all going to narrow banks, how are the lending banks going to fund the longer term loans?

[dgb23]

My understanding so far is that these deposits are often overburdened. In part due to speculative investments.

From a perspective of someone who understands very little of these matters, it seems like responsibilities are shuffled around and the whole structure is unclear.

There are other ways to solve the problem you describe right? For example credit unions come to mind.

I usually look things up on this site, as it seems to discuss financial matters neutrally and explains them so I can understand them: https://www.investopedia.com/terms/c/creditunion.asp