I mean, banking was already hundreds of years old in the 2000s. So recent bubbles and crashes in traditional markets seem like evidence that regulation, at least the kind that ends up being implemented, isn't doing much to prevent very bad outcomes.
There are two kinds of risk that are fundamentally unavoidable in being a "bank" - that is, any institution that borrows short and lends long. One is liquidity as a result of that duration mismatch: you have enough money owed to you that you've lent out, but it's not due yet. The other is loan writeoffs: you've lent money that you cannot get back, often because it's secured against an asset whose value has fallen significantly.
These can be reduced but not entirely eliminated by setting reserve requirements, LTV ratios, etc., which is what https://www.bis.org/bcbs/basel3.htm is all about.
You can't really eliminate the duration mismatch without eliminating anything recognisable as a "bank", and it becomes much more expensive to get credit and to do basic financial operations.
The problem is that once rates hit zero people will just hoard cash like Keynes suggested with his liquidity trap. The only "funds" available are short term deposits. Nobody is buying certificates of deposits. When the bank issues a loan without a CD it has to create new liquid money, that is the only way.
The answer is quite simple, just keep going down with interest rates even if they are negative.
That is fully consistent with the loanable funds model.
Thanks for the explanation, but I'm not sure how it relates to my comment. It sounds like you're saying regulations help because they force banks to keep reserves. I think this helps in the short term, but in the long run creates incentives to deceptively package assets into AAA ratings (as in 2008), and that things like FDIC also just create incentives to get too big to fail. So I stand by my statement.
