It is crucial because new loans generate growth and economic activity. The economy would seize up and enter a deep recession if regular savers stashed their mon

It is crucial because new loans generate growth and economic activity. The economy would seize up and enter a deep recession if regular savers stashed their money in 100% reserve ratio bank. (Many would if there was no government-backed deposit insurance for regular-sized amounts.) I think the reason such institutions don't exist is that they are very unprofitable compared to regular banks and would be expensive to keep deposits in them.