[WJW]

Fractional reserve banks have the assets, just not in liquid enough form that all customers can withdraw their deposits at the same time. For example, some of it is loaned out to various businesses that buy industrial equipment with it, lets say an oven for a big bakery. Over the lifetime of the loan, they can use that equipment to make enough money to repay the money with interest but during the lifetime of the loan the value is 'locked up' in the oven and can't be withdrawn. A non-bankrupt fractional reserve bank always has enough assets but (during a bank run) not always enough liquid assets.

The allegations against Tether are that it is not backed by anything at all, not even illiquid assets. It has so far refused to provide any audited proof that it does and other means of trying to find out (such as reporting by trading desks in a sibling comment) also indicates that there does not seem to be enough money in the pot to redeem all the tokens for their fiat counterparts.