People had a healthy mistrust of banks and also means to store money outside them (precious metals). The bank panics didn't have lasting damage, recovery was fast and they didn't get bailed out by the government. Perhaps government control has mitigated against these little panics, but it set the stage for real meltdowns and slow recovery afterwards.
There are two distinct functions banks do: money storage and lending. These can be completely separate. You only need a money store for the convenience of not having to carry metal. Nowadays, you may want an electronic store as not to have to carry cash.
As for lending, that is a function much older than banks themselves. You don't need consumer deposits to lend money. Some banks do operate that way, but there should be a more clear distinction. We could have 'vault banks' and 'lender banks'.
Both 'vault banks' and 'lender banks', or combinations can operate in a free market.
You can store currency or gold in various non-interest-bearing ways in the current free market. It isn't a very attractive option compared with banks, however as stored money (metal-backed or otherwise) that isn't lent or invested necessarily loses value on average, in the long term against currency that is.
There are two distinct functions banks do: money storage and lending. These can be completely separate. You only need a money store for the convenience of not having to carry metal. Nowadays, you may want an electronic store as not to have to carry cash.
As for lending, that is a function much older than banks themselves. You don't need consumer deposits to lend money. Some banks do operate that way, but there should be a more clear distinction. We could have 'vault banks' and 'lender banks'.
Both 'vault banks' and 'lender banks', or combinations can operate in a free market.