[t3soro]

The bank would have no capital to lend at fractional reserve. It could not lend out 90% deposit value without getting run on, because there is no deposit insurance. There is no M1 money supply growth coming from the central bank. You would be buying a bond but also necessarily acknowledging the possibility of default, unlike today in the funny money world of perpetual debt money.

[wildmusings]

Fractional reserve banking predates deposit insurance by hundreds of years. All of what you say was also true about gold, which was of relatively static supply.