Person A deposits $100.

Person B borrows $100, all the coins move on the ledger.

The ledger could facilitate the transfer while the bank maintains an "IOU" for person A's $100. The bank would be betting that not everyone will come withdrawing at once, just like a regular bank.

Regulation is the only thing that can prevent this from being done with any sort of crypto. The same IOU-based business model as happened with cash, gold, etc, could very easily be implemented using the technology. If you don't like fractional reserve banking crypto isn't a magic bullet that makes it impossible, especially since the general public probably wouldn't be sophisticated enough to know how to stick to "true" crypto vs "IOU-based fractional crypto facades."

But generally regulatory regimes have decided that the productivity advancements offered by the investment-through-loans of major portions of deposits are worth the risks. I don't think the GENIUS act allows this, though, so there's one regard where stablecoins are more-regulated. I worry about the edge cases, though - seems like requiring stablecoins to be paid off preferentially incentives using them for deposits, which could harm circulation if the reserves or followed, or which could screw over non-stablecoin deposit-holders if an institution doesn't comply and then goes under.

(This is closer to how regular banking works than the naive "banks create money by incrementing a number in your account." After all, banks are generally either (a) expecting those loans to be spent or directly giving the money to third parties like car dealerships or home sellers - which is likely to physically move the money to other banks, institutions, or cash, not just recordings in their internal tables.)