A bank with $10 billion in reserves is not going to be able to pay out $10 billion in cash withdrawals even if all its reserves are invested safely. That's because the $10 billion in U.S. Treasury bills they have accumulated over time would only be worth $8 billion if they had to sell them off today -- due to the steep decline in their value as interest rates have risen. (Think of how much a long-term T-bill paying out 1.5% has lost in value when they are currently paying out 4%.)
THIS is why the U.S. government bails these banks out. The government isn't concerned about a run on the bank by its depositors to take all their cash out. It's concerned about banks being forced to sell off their U.S. Treasury bills at a steep discount just to meet even 80% of their deposit exposure.
I’m saying, by 100% that the bank could not use your money to make loans from because it is sitting in the vault at all times ready for you to withdraw at any given moment.
When it is 99%, it means the banks allow themselves to make loans based on the 1% they did not secure because they do not expect in the course of the day 100% of people coming to take their money out at once.
Over the course of the day, a certain number of people will deposit money and a certain number will withdraw money. The banks use that principle to decide how much money, as a percentage, to keep in the bank and how much they can do other things with your money, such invest it or make loans from it. The banks have it down pat as to how much they can risk not having the money secured and still remain solvent.
It works, until something happens when the population panicks and everybody goes to the bank to withdraw their money and find the bank didn’t keep all the money because they took some money and invested it and took other money and loaned it. Then you have a bank collapse.