Banks do need cash on hand to hand out loans, they don't need cash on hand for deposits. However, they can sell old loans to get money for new loans.

Really there is nothing magic about loans. Handing a bank 1,000$ and thinking you still have that money rather the the bank owing you 1,000$ is how money is created.

Actually during 2020 they removed reserve requirement to 0%. Yes really

Which isn't that crazy when bank reserves are at record highs, and was at relative highs when the rule was put into place.

https://fred.stlouisfed.org/series/TOTRESNS

Banks did not want to lend out money and lowering the reserve percentage is one of the few tools they have to try to encourage banks making loans. It just so happens that it didn't do cause an uptick in loans

Reserve requirements are only a question of deposits, but they limit everything from paying expenses to dividends from the exact same pool of money used to issues loans. Which is critical to understand because banks don't just offer loans they also use money for everything else normal business do.

On the other hand, if they didn't need cash on hand to offer loans any random small bank could loan a 1 trillion dollars to someone. They can't because they don't actually have that money.

Consider a bank with 3 billion dollars total and 2 billion in deposits. They only need to care about reserve requirements on 2 billion and can use the other 1 billion for anything because it's their money. In effect cash on hand are assets and deposits are debt. Reserve requirements are just a question of how much leverage they can legally have.

This is called the fractional reserve rate and is a vital part of controlling monetary policy in a fiat system.

The reserve rate was taken to 0 during covid...