Economist Laurence Kotlikoff of Boston University has proposed that the banking system be reformed so that all banks become “limited purpose banks.” As he explains:
[Banks] would simply function as middlemen. They would never own financial assets or borrow to invest in anything….[Limited purpose banking] effectively provides for 100 percent reserve requirements on checking accounts. This eliminates any need for FDIC insurance and any possibility of traditional bank runs.
Why would 100% reserve requirements on checking accounts eliminate the need for FDIC insurance? Would depositors need to fear losing money if their bank failed?