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The issue there is more that the Fed pays interest on excess reserves and that bank was just trying to abuse that system. The fact they could abuse it shows how much of an abomination the whole reserves system has become; but, I don't think an actual 100% reserves bank that just held required reserves at the Fed and kept the rest in T-bills or money in its own vaults would get in trouble.
No, the explicit reasoning of the fed in blocking TNB is that it would discourage people from putting money into institutions that lend.
To be explicit, the Fed Reverse's refusal (and later notice of rulemaking) was about The Narrow Bank (and other) being able to access the interest on excess reserve rate accounts (possibly only at full rate? I can't find the final rule, if there ever was one). The Narrow Bank was chartered in Connecticut and still has a cert good til August of 2023, though I think their specific business model is focused very heavily on those rates and thus they haven't opened for accounts yet.
((I expect groups like the Narrow Bank and Custodia are probably more about the philosophical point, anyway.))
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That is not at all my interpretation of the Fed's statement. I read it as more in line with my interpretation. They explicitly state many times in their statement that the issue is over what institutions should receive interest on reserves. If The Narrow Bank did not receive interest on reserves the Fed wouldn't care IMO. The article in the archive link above also explicitly makes note that The Narrow Bank was trying to do arbitrage on the Fed's policy of paying interest on reserves. I think you are just mistaken.
Nah it really must be more ideological, or something else like that. To the extent any journalist or economist was speculating that the Fed wants to avoid paying interest on excess reserves, they would be flatly incorrect. Central bank reserves are a closed system, so to the extent that a narrow bank is attracting them, that's just a flow from other banks where they were beforehand. The central bank is paying the same interest out either way. Other non-depository institutions (who aren't eligible for IOR) using reverse-repos to get (nearly) the base interest rate is just a workaround to help smooth out the system (ineligible because of congressional rules; the central bank would almost certainly prefer to pay it out in as simple a fashion as possible).
And the central bank is not trying to avoid paying out interest -- it's a policy choice in the first place to pay IOR (that's the whole rate maintenance regime now: instead of using open-market-operations to maintain a positive interest rate, they simply flood the system with excess reserves and pay interest on them directly, which is way simpler). It sounds like the Fed had been narrowing the gap between ceiling and floor rates anyway, because they never were using that lower rate to try to really save money or whatever.
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