Fractional reserve banking means that you get more interest on your savings.
Imagine, 20 million BTC are held in a bank offering 1% interest. They stay sitting for 6 years with compound interest, see the issue?
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With fractional reserve banking, the 21 million Bitcoin in existence would equate to 200 million or so Bitcoin certificates in circulation. All banking is based on the assumption that if all depositors try to reclaim their deposits on the same day, the system collapses. Bitcoin banking will be no different.
Fractional reserve lending means a lot of things. If the reserve type is bailout proof and idiot proof, then it can be a sustainable, useful thing. If the reserve type is something like "monetized government debt", then that's a joke. The system will devour itself like it is now. Gold obviously wasn't bailout proof. We fell off the gold standard by bailing out banks. I'm not sure crypto can be bailout proof, but maybe it can be by way of it's cryptographic nature.
Even if it is bailout proof, it probably can never be idiot proof. If you don't bail out an entity that is suffering a run on reserves due to stupidity or irresponsibility or whatever, they go broke, but yet it is still the note holders who suffer the most.
The links in my earlier post were calling for ideas on how to implement a decentralized note issuing mechanism, maybe with FRB if it can be bailout proof and idiot proof, but i can't see that's possible, but maybe it is, with the decentralized use of math to enforce various ratios.
I see what you are saying but I don't see why it matters. Idiots are perfectly qualified to do business in the idiotic ways they have always done so. You will be perfectly free to not do business with them. In a free market, if the currency is Bitcoin, there will be fractional reserve banking. You of course will be able to keep your Bitcoin in a usb stick under your mattress but the vast majority of people will use banks that pay interest.