I am not convinced by this argument* because banks can already do that. I don't think that bank are "required" to invest client's deposits, so they can already just stash paper cash in a big vault. It is clearly a dumb strategy for a retail bank.

This proposal for narrow banking seems to employ the government as this vault, sort of like treasury bonds that can be freely withdrawn, which seems a more significant difference.

* I am not denying that this is what the feds claimed and/or believed