Could you explain this some more?
Is bitcoin incompatible with any kind of banking at all?

Is there any banking that is not fractional reserve banking?

Is bitcoin incompatible with loans, interest, etc.?

Let's say I deposit 100 bitcoins at the bitcoin bank with 1% interest.  The bank lends 90 bitcoins to someone else for 2% interest.  Between the two of us, we now have 190 bitcoins.  In reality there are only 100 bitcoins that can be used for bitcoin transactions at any time, so this is called fractional reserve banking.  The extra 90 bitcoins are a promise to pay someone at a later date (e.g. when I ask for my deposit back).

A year later the borrower pays back the loan by turning in 91.8 bitcoins to the bank.  I withdraw 101 bitcoins from the bank and the bank ends up with 0.8 bitcoins profit.  Is there something wrong with this scenario?  Is it any different from conventional currency?