Iceland to ban private money printing / creation?

Frances Coppola correctly identifies a weakness in the proposal to ban private money creation or "printing" in the tweets below.  Incidentally the Icelandic proposals are a straight copy of Positive Money proposals far as I can see.

I reproduced those tweets via screen shots which is a quick though not the best way of doing it. If you find them too blurred, clicking on them may help.

The weakness Frances points to is that the investment account department or subsidiary of a bank can still suffer a run or go bust. One answer to that is simply to raise the capital ratio of the department / subsidiary to whatever level makes failure near impossible. I suspect Pos Money's answer is the same, though I don't speak for them.

However I don't like that solution. I'd prefer to simply raise the capital ratio to 100%, which amounts to funding those investment account departments just with equity: i.e. there'd be nothing that faintly resembles a deposit or "money". And indeed the latter is what happens under the version of full reserve advocated by Milton Friedman and Laurence Kotlikoff. Reasons are as follows.

Under full reserve banking, people and firms can keep whatever amount of money they like in a totally safe form in the safe accounts: that's basically the amount of money that households and firms need for day to day transactions. Though if a household or firm really wants to keep far more than that amount of money in a totally safe form, they're free to do so.

Having done that, what then is the point in offering something that's getting a bit close to money in transaction accounts? That's duplication of effort.

Note: the material below is NOT A COMPLETE reproduction of our twitter conversation, but it will give you a flavor.