The reason most of the money isn't in the bank vaults isn't because it's "virtual" or was created out of thin air - it's far more prosaic than that. It's just

The reason most of the money isn't in the bank vaults isn't because it's "virtual" or was created out of thin air - it's far more prosaic than that. It's just because it's been lent out by the bank. In principle, if everyone who the bank had loaned money to was able to immediately repay it, then you could unwind everything and make everybody whole again. The bank run occurs because this can't happen - the people the bank has loaned the money to simply cannot repay immediately, because they've spent the loan on non-liquid assets. The fundamental purpose of the bank in such a system is to fund long-term, risky and therefore expensive debt (such as to someone who wants to start a business) with short-term, secure and therefore cheap debt (eg a savings account).