We have to put the feds in there somewhere; otherwise when it all comes down on our heads in The Giant Collapse, the government will be the only thing left standing.
The alternative is sound alternative institutions where everybody is aware that no one will rescue them from bad decisions (i.e. the free enterprise approach)
That's not all bad. Fractional reserve banking moves some decision making power concerning expansion and contraction of the money supply closer to where the customers are. That is inherently going to cause more volatility than a centrally controlled system. I think you'll agree though, that in most areas of human endeavor, decentralization of control adds responsiveness to local conditions and an ability to react more quickly to change. The increased volatility probably means that the right things are happening sooner, i.e. larger numbers of smaller adjustments instead of the quarterly announcement from Mt. Olympus.
Higher levels of fractional reserve banking also weaken the ability of the Federal Reserve to mess with the reserve ratio at all. In theory that ought to be one of the Fed's most powerful tools for managing the money supply, but in fact they hardly ever touch it. With a 20% reserve ratio, even a tiny change causes such a huge swing in the money supply that forecasting what will happen if they move it becomes almost impossible. So as a policy tool, it's become worthless. A cynic might suggest we leave it that way.