To borrow money from you, paying you a low interest rate, but allowing you to withdraw it at a drop of the hat, while lending money to someone else, at high interest rates, but on a fixed, multi-year repayment schedule.
Borrow short, lend long. It's socially useful, and if the bank does it well, it stands to make a lot of money.
And the purpose of this is to increase money velocity by providing loans. "Narrow banking" (having the government provide bank accounts) wouldn't work unless the government also provided business loans, which doesn't really make sense.
You'd be fine with a regular law. But like I said, it would affect money supply greatly (ceteris paribus) so there's a lot of consequences to work out.
Free countries start from the presumption that everything not forbidden is allowed. It would affect the money supply greatly, but there was a time when every bank was a narrow bank, so isn't it really the fractional reserve banks who came along and affected the money supply greatly?
I'm not saying narrow banks are worthwhile, but it's utterly insane that it's illegal for a bank to simply hold $100 bills in a bank vault on your behalf. It's utterly insane that banks are not just permitted, but legally required to lend out your money. And there's a minimum amount, too, because a bank that lends out $1 of each customer's money won't get a license.
Thats a rather incomplete business model description of banking.
There are at least three distinct elements and largely unrelated to core banking: payments infrastructure / gatekeeping the private/public monetary system, managing interest rate risk (which is what you describe) and managing credit risk.
Add to that countless "non-core" intermediation activities which nevertheless, depending on the type of bank can be major revenue sources.
Maximazing social utility is indeed the key question but how to do it in a sustainable and future proof way is hardly ever seriously asked.
The purpose of banking is to allow people to store their money safely. It is not to allow finance bros to gamble with customer deposits without consent.
The purpose of banking for most people is to put their money in so they don't need to carry cash around, but the purpose of banking for banks has been to make profit by gambling the money people are giving you for safekeeping.
A bit like the relationship between Gmail and personal data, really.
To borrow money from you, paying you a low interest rate, but allowing you to withdraw it at a drop of the hat, while lending money to someone else, at high interest rates, but on a fixed, multi-year repayment schedule.
Borrow short, lend long. It's socially useful, and if the bank does it well, it stands to make a lot of money.