In its death note to narrow banks (link to Federal Register where you can post comments; previous post), the Fed claimed charmingly that retail deposit rates are fully competitive, so we don't need a narrow bank option to help spread the interest on reserves to deposit rates. In the Fed's view, the fact that banks pay so little compared to reserves just reflects the costs (many of them regulatory!) of servicing retail accounts.
A narrow bank passes on the deposit rates from its fed account. For a narrow bank to work with the Fed, it needs an equivalent loan balance, it is S/L that is managed. We do not have an S/L currency emitter, we have Treasury debt in the loan column, narrow banking won't work.
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