> Bitcoin-backed banks will solve these problems. They can work like banks did before the nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional-reserve, while others may be 100% Bitcoin-backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

The above is an excerpt from Hal Finney's post on the Bitcoin Talk forum on December 30, 2010.

Fractional reserve banking, for what it actually is, is not what traditional banking systems practice. And the notoriety and abuse of that practice stems mainly from the faith in government bailouts, and the lack of real consequences for risk abuse.

With Bitcoin, there'll be no bailouts; hence, a fractional reserve setup in this system wouldn't be bastardized, no crazy risks, and a run is imminent in the event of abuse, cos there's no backstop.

So yeah, it enables Fractional reserve to be what it is actually meant to be: lending out part of deposits, knowing that a default in debt means absolute loss of the loan asset, and an abuse leads to a catastrophe in the event of a run.
This enforces transparency because depositors get to understand the risk they're taking.