Banking can still work making Bitcoin the underlying. They just can't go too much like 0% with fractional banking. They could get away with it due FEDs implicit money printing power.
Discussion
i don't see why you can't do fractional reserve banking with Bitcoin. FDIC can't insure it but you could still do it. you just have to tell customers they have X bitcoins. this is how several Bitcoin exchanges collapsed.
the exchanges that have been around for decades probably just made good investment decisions. i doubt that most exchanges are keeping all of the Bitcoin in a wallet. it makes sense to invest it, and tada, that's fractional reserve banking.
Yes, exactly. Too much money/Bitcoin in storage tickles the custodians, they feel obliged to invest it.
One difference is that crypto exchanges reveal their fractional banking way earlier because transfers are happening on blockchain.
On the other hand, inter-bank transfers are hiding the fact that bank doesn't have the money.
well, if you're a nerd like we are, yes, but i'm sure that traditional finance insiders can also see such info