The question pertains mostly to EU but I believe counterparts to Deposits Guarantee Scheme exist world-wide.
Let’s suppose that support for liberal ideas and free market rises in European nations what results in taxpayers withdrawing their support for majority of state’s interventions in the free market, including Deposit Guarantee Schemes. Taxpayers would also demand that the minimum capital to open one’s own bank would be dropped from 5mln Euro to 100k Euro, so that the competition in the banking sector is at a much higher level that it is nowadays which is an interesting topic in itself but let’s just focus on DGS exclusively. I am far from judging who would benefit on that or whether such a situation is even likely - it’s simply an axiom for this question.
Now, given that Fractional Reserve Banking model makes it impossible for banks to guarantee even a small fraction of deposits in their own capital as clearly banks juggle money supplies rows of magnitude higher than they own, what can we reasonable expect to happen if taxpayers turn their back on banks and demand banks to provide their own guarantees?
I presume that once the taxpayers’ guarantees are gone, for banks to be perceived as a safe place, they would have to own capital that at least equals the deposits to be handed over to them?
Otherwise, I cannot see what would people base their trust to banks on?