It sounds fine to me to have small banks failing with FDIC around. People don't lose their money, and someone with better business sense starts a new branch.
I think deposit insurence is great but Im not sure why the state should provide it. Most of the Bankruns happend befor the FDIC (1933). The problem with the FDIC is just that it makes, that people dont run on banks. Bank runs or often 'good' in the sence that banks that are overleveriged get finally taken down. As sooner as banks are taken town the more return you get for every doller in the bank.
With the FDIC and the FED banks can go on longer then the should and therfore pay back less when they are finally go down.
