Fractional reserve banking means that banks must reserve a fraction of the deposits. They lend out the rest. The deposit is still on record and the obligation to repay it still exists.
If a bank never takes deposits, they have nothing to lend out. If Tether was printing Tethers without having deposits in place, they're not doing fractional reserve banking.
> As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
---
Feel free to correct me on this; my financial knowledge is only just a bit higher than that 0% rate noted above.
The reserve requirement was removed because banks were holding too many reserves for the feds liking.
Every US bank still has asset & liability requirements including having at least as many assets as liabilities and stringent rules on what the assets are. Further they have reporting requirements as well.
Fractional reserve banking still means having assets that cover your liabilities; those assets simply may not be liquid (i.e. they are loans that will be paid back over a period of years).
If you don't have assets on your books, and have instead either walked with or lost a large portion of the money, then you're not doing fractional reserve banking, you're running a confidence scheme.
If Tether, as suspected, was largely "backed" by crypto assets and Bitfinex shares, then they're gambling with the bank funds... and the recent losses in the crypto markets mean that they have been losing those bets.
(I edited the last portion of this substantially to make it more concise.)
1. You deposit $100 in the bank. It keeps $30 as cash and lends out the rest to someone. The money is still there on the balance sheet (but with a risk that it might not be returned)
2. You deposit $100 with Mr. Paulo in return getting 100USDT. Mr. Paolo spends $70 on private jets and ho*kers. If you ever want back more than $30, you're out of luck.
