In the long run, all this does is shift risk to less-regulated institutions while doing absolutely fuck all to guarantee the financial solvency of anyone outside of the banking bogeyman.
How does it do that? Talk about a total obfuscation. The smaller the institutes and banks, the easier they would be to regulate, to challenge, to instruct and to penalise. Being smaller does not mean you're going to be less regulated, in-fact it most likely will lend to the complete opposite!