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.)
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.)