Once again, this is incorrect... They do not loan out the same money over and over again...
I don't know where you got this idea, but basically fractional reserve banking simply means that if you hold your money in a bank (say $10,000) which they give you interest on (of say 2%) they can lend a certain fraction of that money (e.g. 90%) out to other people to gain interest on it (at home loan rates) and they keep a fraction as reserves (in this example 10%).
The downfall of fractional reserve banking is that if there is banking crisis, it's unlikely the bank has those assets on hand, so things like liquidity of the bank becomes a big issue. Not because it has lent out the same money over and over again, but rather because it's only holding 10% of deposits on hand and it has lent out or invested the rest of the money (which is how it makes it's profit).
The economic principle often referred to as 'money created' or 'money multiplier effect' is a gross misrepresentation of what is actually occuring. In fact, the real impact on money supply in standard economic conditions is that the 'reserves' takes currency supply out of the market, which is an issue in itself.
DCC Price at posting:
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