I am neither an attorney nor an expert on the law. The below the fold material was sent to me by a Boston-area attorney whom I greatly respect. I will allow the fiscal experts here (hi, Bonddad) to explain what you are seeing, but the essence is that a bank can lend out every penny it has in stock, and keep no reserves, I think.
I suppose "zero' is a fraction, but this is not what is usually meant by "fractional reserve banking".
The legal piece is below the fold.
George Phillies
12 USC sect. 461 defines the reserves that commercial banks ("depository
institutions") have to maintain.
http://uscode.law.cornell.edu/...
(b)(1)(A) defines "depository institution", and (b)(2)(A) sets the
reserve minimums. Long story short, commercial banks have to keep 3%
reserve against "monetary policy" transactions up to $25 million, and
between 8% and 14% (set by the Fed) on transactions above $25 million.
Now check the "Notes" for that section.
http://uscode.law.cornell.edu/...
Pub. L. 109–351
<http://uscode.law.cornell.edu/usc-cgi/get_external.cgi?type=pubL&target=109-351>,
title II, §§ 201–203, Oct. 13, 2006, §§ 201–203, 120 Stat. 1968
<http://uscode.law.cornell.edu/usc-cgi/get_external.cgi?type=statRef&target=date:nonech:nonestatnum:120_1968>,
provided that, effective Oct. 1, 2011, this section is amended— (1) in
subsection (b)(2)(A), by striking "the ratio of 3 per centum" and
inserting "a ratio of not greater than 3 percent (and which may be
zero)" in clause (i) and by striking "and not less than 8 per centum,"
and inserting "(and which may be zero)," in clause (ii).
This amendment was scheduled to eliminate the reserve requirement
entirely on 10/01/2011. I say "was", because here's this gem from the
Emergency Act that Congress just published tonight:
SEC. 128. ACCELERATION OF EFFECTIVE DATE.
Section 203 of the Financial Services Regulatory Relief Act of 2006 (12
U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and
inserting ‘‘October 1, 2008’’.
In other words, the reserve requirements for commercial banks can be
ZERO for ALL TRANSACTIONS as of this Thursday, if this monstrosity passes.