Great idea, but its inconvenient when you need liquidity but the bank doesnt have it. We should let the bank lend out more money than they actually have, and if there's a run the public can just bail them out

Ok I am triggered.

I am rather ignorant on the matter but indeed I don't like that some things/people are too big too fail in the system.

On the other hand, isn't that established that banks being allowed to issue more money than what is backed by their assets is universally recognized as "good" as in allowing for previously unseen economic development that benefits everyone (but not equally...) ?

In banking terms, the main assets are the outstanding loans. Fractional reserves (deposits as a percentage of loan balances) are no longer very relevant to modern banking. The limit in the USA was cut to zero in 2020.

https://www.federalreserve.gov/monetarypolicy/reservereq.htm

The focus is now more on capital for assessing bank health.

Just to add, what's called "capital" in banking is basically the bank's equity. And there are proposals to force banks to carry a lot more equity (even if, my god, that reduces the return on equity earned - with a concomitant reduction in risk, though, thus making the equity no less valuable, theoretically speaking).

See for example The Bankers' New Clothes: What's Wrong with Banking and What to Do about It (2014) by Anat Admati and Martin Hellwig.

What you're referring to is leverage. It's a multiplier.

The issue is malinvestment and misallocation of resources.

Leverage up on malinvestment (which is what most of the central banks and governments are doing) and it's the fast path to hell.

A fixed supply neutral third party money adds a sort of safety barrier against this leveraged malinvestment.