As for the shareholders whose money get leveraged, most large banks are public and you're free to buy stocks. If you money in index funds or other diversified stock funds, you likely already have invested substantial amounts.
I don’t think that is practical at all. Not enough of people are going to be doing their due diligence on bank risk profiles, 20 years later.
Making excessive risk illegal through regulations seems more practical, but maybe your point was also that these failed.
If you banked directly at the Fed, or with crypto, then moving some of your money to a bank would actually be a choice. And the entire incentive structure would shift accordingly.
They have no incentive to change. They are given a government backed mandate to be your only choice. Given those privileges, it's their incentives to abuse them. They have been continuously abusing them for years. It's not only risk, it's the interest rates they give customers. They get to arbitrarily pick and choose their friends to get good interest rate while you get trash.
They get to do all of this because they are protected with innocent people as meat shields. Meat shields that have no other choice but to protect these people from consequences.
Presumably you apply for a banking license, commit a lot of capital and subject yourself to countless onerous regulations (with more to come, as usual). I'm pretty sure it's significantly less fun than you imply.
Where even getting margin called on extremely big margins compared to my initial investment, the government would sweep in because that margin wasn't even mine to play with?
Where I get absolutely ridiculous interest rates from the Fed which I don't need to pass on to my meat shield clients, I just get literally free money from the central bank?
All these privileges for no responsibility. This has to end. If we all admit it's other people's money, and we all admit that in failure, the government will also cover for them, and they get to play these completely absurd investments with leverage of 20 to 1, their privilege is just unjustified.
When the broker fucks up and let you blow your margins, the broker pays the bills. But banks get to blow the margins with everyone's money and somehow the government only comes in when they blew it, but wasn't responsible to keep tabs on their margin in the first place? And there's barely any margins, the leverage ratios are insane.
Of course debt holders would require much higher interests. The whole thing is just a sad scheme where the government is letting privileged entities a monopoly of using leverage on other people money, while the government holds the tail risk.
I would love to get 20 to 1 margin with the government taking all the tail risk to zero and allowing me to dip below zero by design. If I blew it I could start again just like Lehman CFO which moved over to SVB.
If you take their responsibility, you have to take their privileges too.