The drawback to this suggestion is that once the problem has reached systemic proportions, the intermediation process has broken down so badly that good borrowers will be hurt as well as bad ones. The government has to step in and close down the insolvent lenders, and take the bad loans off the remaining banks so they can start with a relatively clean slate.
This solution is invariably costly and may not appeal to some on long-run moral hazard grounds, but the alternatives are so much worse. In practice, this is the only practical solution to a systemic failure of the financial system. The table below shows some recent examples of the budgetary cost of systemic failures.