Fractional Reserve Banking - Waiting to fail

CNBC recently ran an article highlighting the fact that as part of the Dodd-Frank financial legislation financial institutions deemed to big to fail were required to create "living wills" that would document how a bank would be split apart if they were to run in to trouble.  I find this a bit amusing because banks are all basically insolvent.

U.S. banks, and most [all?] banks worldwide today operate as fractional reserve banks meaning that at any given time the bank does not have on hand all of the money they have accepted as deposits.  The banks, of course, are using deposited funds to generate revenue, most commonly in the form of loans or one sort or another.

The U.S. Federal Reserve establishes minimum deposit reserves depository institutions must hold against deposit liabilities.  In its wisdom the Federal Reserve has decided that reserves as low as 3% are acceptable (0% for nonpersonal time deposits).  So for every dollar you deposit with your bank they may be able to hold as little as $0.03 in reserve.  In 1993 the Federal Reserve published a report on the history of reserve requirements (PDF) which shows that in 1913 the required reserve was as low as 12%.  So from 12% down to 3% - I feel safer already.

We have government leaders pretending to be worried about the soundness of our financial institutions and yet we have a regulatory arm of the government (yes, I know the Federal Reserve is not technically a government institution) that has lessened the safety of our banks over time.

In the U.S. with the FDIC depositors are "insured" against losses of up to $250K. Ironically, though typical when government gets involved, depositors have absolutely no incentive to choose the banks that are the most sound for their deposits, rather other factors will come into play (interest rates, fees, ATM, access, etc.).  Given freedom consumers or "the market" over time would determine what level, if any, risk depositors would be willing to accept with institutions with whom they entrust their money.

Living wills - looks like we need to implement now.