Through a highly-regulated process. We haven't had a bank run on regulated deposits since the FDIC came into being.
I've already told you the fact that 95% of money doesn't exist outside of the private banking system. What kind of regulation do you think is stopping everyone from wanting to get paper money for their entire life savings?
For those who don't immediately see this, just think for a moment how much of your income ever leaves the banking system. Do you get paid in paper money? Pay your rent in paper money? Did you buy your car with paper money? The answer to these questions for everyone is increasingly no.
That's missing the point.
The point of regulation is building a society where you don't need to do that. A bank collapse no longer means you lose your money - the FDIC insures a good-sized chunk, and the Feds come in and take over operations temporarily. Bank runs are prevented not by having enough paper money on hand, but by making people feel confident in the entire system - that your money will be there when you need it.
Fascinating read on how relatively seamless this now is: https://www.npr.org/templates/story/story.php?storyId=102384...
Who do you think is footing the bill when the government has to step in? The banks or the government? Wonderful regulation...
Banks pay insurance premiums to the FDIC.
> The paper money doesn't exist.
Who cares? A college diploma that's not printed out is still a college diploma. I don't need to be able to physically hold it in my hands, and if a hundred thousand people all asked the Bursar's Office for a copy, they wouldn't be able to do so in a timely fashion either.
That's what modern banking is. 95% of money in use is created by the private banks themselves.