Fractional reserves are not free to banks. The bank must pay it's deposit holders and bond holders interest on the money on deposit and lent. When a bank lends money to someone, they need to make sure they are an appropriate risk and price the loan accordingly. When a borrower falls behind on their payments they need to make collection efforts to collect what is owed by the borrower. All of these things cost money.
Bullshit. The fractional part is created out of thin air. That is what makes it fractional. They don't pay any interest on this newly created money.