But if you borrow BTC from a bank to make a purchase, the seller will expect to receive the actual BTC, not a BTC bank credit. So the scope for FRB is far more limited.
You won't borrow BTC from a bank, the bank will issue a credit card with which you will pay for your purchases. Whether this bank (or any other bank for that matter) actually has all the BTCs it has credited you with is another question... So, unless there is a Central Bank which has set the economy on a Bitcoin standard (with all ensuing dramatic consequences), banks will still be able to create more money (virtual BTCs) than there are bitcoins out there...
If you agree with this, then the fixed supply nature of Bitcoin becomes unnecessary and detrimental here
But when a bank becomes insolvent, the extra money created from thin air just disappears. The monetary expansion is just temporal.
Under the current system, a central bank can just print that extra fiat money to save the bank, increasing the money supply and reducing the purchasing power of the previous supply. That's not possible with Bitcoin, as they can't be created by central banks. We can't forbid banks from lending more than they don't have, unless the government forbids them to do so. But I wouldn't expect that from governments, as they have historically encouraged banks to increase the money supply, to create temporary prosperity (which increases tax revenue) and lend money to the same government.