Iceland thinks about ending fractional reserve system

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Iceland's government is considering a revolutionary monetary proposal - removing the power of commercial banks to create money and handing it to the central bank.

The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". 

The proposal reads just like Martin Wolf's book:

Because savers can expect that the state will step in and guarantee
their deposits, the deposits of all banks become ‘risk-free’ to savers.
Savers will therefore deposit their money with the bank that offers the
highest rate with little consideration of the risk taken by the bank.
Bank managers must therefore compete for customers, based mostly
on interest rates, but not on how solid the bank is. The implied state
guarantee therefore encourages risky lending, which in turn increases
the risk of more bank failures and crisis.  .....  In a Sovereign Money System 

the amount of money in the economy is controlled directly by the Central Bank, 

preventing private banks from expanding it.
The pro-cyclical expansion of the money supply by private banks will
be made impossible. Instead, the Central Bank will increase the money
supply in proportion with the overall growth of the economy and to
meet inflation targets.  Crucially, the power to create money is kept separate from the power
to decide how that new money is used, thereby ensuring that conflicts
of interest do not lead to too much (or too little) money being created,
or money being created for private, rather than public, benefit.
The risk of sudden bank runs is greatly reduced. Deposits on
Investment Accounts have maturities that are distributed over a
longer period, allowing banks time to liquidate assets if needed.
Deposits in Transaction Accounts are protected in a bank failure as
they are kept at the Central Bank, on behalf of the customers, and are
separate from the failing bank’s own assets. A deposit guarantee
scheme is therefore not necessary for Transaction Accounts.

What do you think?