I'm saying if you have a free market providing FRB services, which produces usable money in the form of notes and accounting entries on reserves, the vendors in this market who happen to be idiots or unlucky or victims will issue too many notes and suffer panics on reserves and therefore become absorbed or merged or bought by another FRB.
One question:
What would motivate a large bank to buy the debt of a smaller one? They might buy up the assets (brick and mortar buildings, etc), and certainly that might be used to pay back the remaining outstanding debts, but the out of business bank will not be "merged," it will sell off whatever it can, and then fade into history.
This process happens over and over and over and over until there are only a very few big players with all the reserves all pooled up in just a few places. They then cartelize. When a cartel in something as important as creating the money supply gets big enough, it starts influencing the government.
And let's assume that that's exactly what happens: All the other banks suffer runs because they were stupid, and their assets are picked up by one big bank - or a cartel - that does a lot of business. Without the government to influence, what harm can they do?