They don’t allow fully reserved banks because they know that will cause a run on the fractional reserve banks. We will reach a point where enough people equally realise the difference between bitcoin and fiat - only I’m not sure they can truly stop bitcoin
Discussion
I'm not sure that I agree that the existence of fractional reserve banks are a creature of the state. In fact, it seems to me, that the time preference arbitrage, is a pretty seductive and powerful incentive for fractional reserve banking, even in the purist of unregulated free markets.
It also seems to me, that the possibility of returns and yield on even bitcoin, from trading time preferences for interest, would persist, even in a world of hyperbitcoinization.
I feel like when people make this argument, there's quite a bit they're taking for granted about what they view as people's innate ability to practice restraint based on a normative principle, such as the ethics of such a thing.