Agreed. I cannot believe so many "free market" people are against this idea. If this is what consumers want, someone should provide it, for a fee. More to the point, lending is important, especially when buying a house. Fractional reserves allows others to earn interest on their savings. Such a Bitcoin bank could still have proof of reserves, indicating how much money is being lent out vs. in reserve.
With Bitcoin, it is purely optional whether you work with such an institution. This is less easy in our current financial system.
Terminology may be bogging down a valid discussion. Central bank == insurance (as /u/PostOpticon pointed out) seems to be the crux of Mr. Mu's argument. I do agree the usage of "Central Bank" is inaccurate, but should not preclude a valid discussion.