I mean, you would be substantially increasing the size of government. The federal government currently employs about 3 million workers. The banking sector employs 1.4 million. To perform similar functions, the US government would need (at least) a similar number of employees. That is probably politically disagreeable.

I have been reading about this topic recently and still don't really understand how 'new money' is being created. In a loan, the bank creates an IOU that didn't exist before and doesn't point to a stack of $$ on the shelf. But it does point to the bank, and the bank itself has tons of customer deposits. And if I take that IOU and give it to a car dealership who puts it in their bank, for the transfer my bank will take actual money from the general pool of customer deposits. AND I have to pay back the loan which goes into the general pool. So while specific money isn't earmarked, the IOU represents money that the bank has right?

I guess a way to ask the question would be: if i were to liquidate all assets of a bank and call in every loan, would that be >= all customer deposits?

This is nitpicking. While that paper is a good read and important to understand how banking works, the parent commenter's point about how money creation works, and how a narrow bank would not participate in it, is valid. Deposits _are_ a source of funding that a bank considers when making loans, even if a bank does not "turn deposits into loans."