There is already fractional reserves among the Bitcoin and alternate exchanges and they are creating immense inflation.   At least a crypto bank fractional reserves would be leading to something more positive - like financing & credit, investment options or even consumer protection.

Myself wouldn't use such an institution unless I was ensured it was safe and the person running it was public and had legal liability (like imprisonment or fines) if it went bankrupt.  It would have to be compliant with regulatory laws in the sense that it would have to undergo external audits and publish reports every quarter or semi-annual.

This is an economical discussion not particularly well understood by most users of Bitcoin.  Our contemporary world economy and even national countries are largely ran on the premise of spendable IOUs.  If there wasn't spendable IOUs then velocity of money would likely slow to a crawl as nobody would be able to get financing, credit or capital for economic activities.