Last time it might've been effective was probably in old-school Unix time sharing with users connected via tty's rather than TCP/IP. Already early SQL databases, with the possible exception of Informix SE, had a client/server process model where the server process had full access to all data files and would at best authenticate sessions but not individual accesses against /etc/passwd such as via Oracle's pipe/bequeather connector but more commonly would assume fixed global roles and handle auth on the app side. As soon as IP and "services" were introduced, /etc/passwd stopped being effective, as pointed out by bluetomcat [1]. Actually, even gaining shell access is considered game over from a security PoV, due to multiple privilege escalations.

[1]: https://news.ycombinator.com/item?id=37462806