That level you describe also exists -- instances are self-policing their users, though it's an admin thing, not a mod one (mods are for communities).

lemm.ee just posted some numbers for the year and after kbin.social, which seems to get many spam accounts, they're mostly banning lemm.ee users for misbehaving. No great need to ban .world users because .world admins are keeping their own ship clean, "are your users a bother to me" is a big factor in federation politics.

OTOH not giving communities the ability to police themselves would leads to problems because the only way to deal with anything would be to choose the nuclear option: You might get heated in a discussion about your favourite comic book character and lash out, calling people names, but otherwise be perfectly reasonable, the mods temp-banning you from their community is the right approach, there, not making you switch instances, or depriving others of the furry porn you post to the same instance as the comic community is on, or whatnot.