In a more perfect world, I totally agree. But with American average savings so low and with the average level of financial literacy so low, expecting half of America to join the ranks of financial system watchmen is, IMHO, a tough hill to climb.
People now ain't stupider than in the past. And banking systems around the world (apart from the US, probably) did just fine without government backed deposit insurance. Eg in Canada or Scotland during their free banking eras.
[study on financial literacy from 2022](https://gflec.org/wp-content/uploads/2022/04/TIAA-Institute-...)