The question is, now that we have computers and money is just an entry in a database, why are banks even necessary for storing and moving money?
The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.
It's not a technological problem. The Fed doesn't want narrow banks that only only keeps deposits safe and are deliberately blocking their formation. John Cochrane speculated that the Fed is forcing deposits into risk taking lenders in the believe that it makes lending to businesses and consumers cheaper:
This is the argument for CBDC. the Fed taking over deposits.
The issue comes when you want to get a loan or mortgage. How does the Fed know if you're financially stable? How on earth can the Fed know how to centrally decide?
In general the answer is: split the savings and investments in two different entities. One entity that saves but has forbidden to invest, and an independent entity that invests.
If the government essentially guarantees all deposits and generally decides who gets a mortgage … I am not sure what the main point of banks is for consumers apart from maybe charging exorbitant rates on credit cards.
Yes. If you want to invest your money with a chance you will lose it in exchange for earning interest, invest it into a bank savings account.
If you just want an electronic money account with which you can send and receive and store electronic funds, and not risk losing it, keep it with the government.
And add legislation with it that requires the government to provide everyone with an account, even criminals, and it cannot be closed, and any seizures have to be from court orders, but the ability to transfer/store money electronically remains an inalienable right.
He's correct in that you'd get a loan or mortgage from a bank still, but incorrect that banks lend out deposits though - a bank loan directly creates new money, so if everyone was using a CBDC and had their money kept in their digital wallet you would no longer need a bank account for storing money, but the only thing that would change about getting a mortgage is that repayments would come from your wallet, not your bank account.
You're talking about buying bonds as "lending to the government" which is a pretty odd way to describe it, but it still isn't the bank lending to clients, which creates new deposits and a matching loan asset.
The whole small bank and big bank issue is moot. Technology has long solved this problem so the government could roll out a solution where no one ever risks any deposits, no FDIC is needed, and no bailouts are ever needed.