Murray Rothbard explains very well (in the Case Against the Fed) that in a true free market banks would not exist in the shape and form they're in now. The "regulation" that you talk about that prevented banks from leveraging so much was there to limit the scope of fraud banks are already in, and the fraud is called fractional reserve banking.
If you remove the Glass-Steagall Act and you get rid of the Federal Reserve, banks would be hard-pressed to leverage as much as they did in 2008. However, since they have the Fed on their side they can always get bailed out. And that's exactly what happened.
If there was no Fed and no Glass-Steagall and banks spread themselves as thin, a lot of people would have lost their money but these bankers would be in jail now. And you watch if the next banker will do the same.
Rothbard explains very well why fractional reserve banking is a fraud and not acceptable in a free society and free markets.
In reality, banks, in today's shape and form, do not provide any tangible benefit to society, the only thing they cause is assets to artificially go up or down in price. Now, investors are different matter. They provide capital.
Yes, banks provide capital as well, but the capital is non-existent, the banks created it out of thin air, out of franctional banking. But the money really isn't there.
Want DP delivered to your inbox daily? Subscribe here: