I don't know why people are afraid of this. One of the main reasons for which I'm personally using Bitcoin is because there is no centralized party and there are no corrupt banks involved. Obviously if they create a viable alternative, it is going to be under a fixed 'set of rules' that you have to follow (after which using it does not make much sense).
Yes altcoin and bitcoin can co-exist but what if those banks releases the blockchain based cryptocoin than we can't exactly call them as cryptocoin. They all will be centralized and their supply will be limited to total fiat they have in their bank. So i don't see any difference between the banks so called blockchain based coin and fiat we have now.
No anonymity/privacy, no decentralization. It's most likely going to be worse than the existing systems.