Type of financial entity that should exist:

- Consumers and businesses can easily sign up
- Federally regulated
- Only function is to custody USD
- No fractional reserve
- Ability to opt-in to yield via US Treasuries
- Revenue model: cut of Treasury yield or $9.99/m subscription

I doubt the Fed would allow such a reasonable option. All the money would go there

Could a smaller bank with an existing charter simply switch to this model?

Only during bear markets. rates would be so low, you might as well custody yourself (like crypto). (the mattress analogy)