The business of a bank is to understand and trade in risk. That's simple when the risks are simple, but complex as the risks get more complex; 40 years ago it would have seemed obviously ridiculous for programming to be the proportion of our economy that it is now, but programming has grown more complex in proportion to the businesses it's applied to. So it is with finance. (Water supply doesn't require understanding the business; supplying water to a simple business is the same as supplying water to a complex business, whereas making a loan to a simple business and making a loan to a complex business are very different).

What line would you even try to draw? It's very difficult to trade risk without a central clearinghouse. It's very difficult to run a central clearinghouse without being willing to guarantee at least some of the risk at least some of the time (you can limit how much, but we already regulate bank capital ratios etc.). Diversification is the banks' best defense against the risks they're taking, so if you require the separation of two more-or-less independent categories of risk (as Glass-Steagall does) that seems likely to make bank failures more likely, not less.