It only makes sense for a retail bank to hold onto that money if it doesn't think lending it out beats holding it on a risk adjusted basis. In other words if b

It only makes sense for a retail bank to hold onto that money if it doesn't think lending it out beats holding it on a risk adjusted basis. In other words if banks are sitting on money, they think the risk of not getting it back is worse than the interest they would be getting. Your argument requires them to be wrong about that, which is pretty unlikely given the number of financial crises we've seen caused by a glut of bad debts.