The whole premise behind fractional reserve is that banks aren't handing out real money or real coins when they approve loans or credit for their customers. They are handing out numbers on a spreadsheet only. This could work in bitcoin just fine if people don't actually withdraw their coins from the platform in to their own wallet, but rather just trust the number the platform shows them is present in their account, as they do with centralized exchanges, web wallets, and so on.

Indeed, forcing the bank or centralized service to sacrifice some of the coins they are holding with every block mined, actively encourages them to hold as little as possible in their reserves, making fractional reserve worse rather than better.

This of course all ignores the fact that you would never get consensus on a proposal to start stealing coins from people's wallets and adding them back in to block rewards.