Lack of redeemability, lack of transparency, and a history of fraud.

Banks contractually guarantee the right to redeem deposits for cash. Redemption of tether for USD seems to be subject to the discretion of its operators.

Banks are fairly transparent about their assets to the public, and completely trasparent to their auditors and regulators. Tether is an unaudited, unregulated black box.

IMO, tether is no longer a fraud, but it definitely was for a while when they were claiming 100% cash reserves but actually running with fractional reserves. Banks don't lie about their reserves.

There is also government regulation, like how they must prove that they are solvent and how much they must have in liquid assets to stop bank runs.