So arguably investment activity can merrily continue with low capital ratios at the banks (assuming they can effectively manage the securitisation of loans and/or the market stays hungry for them), but what happens when you reach an economic crisis? Such as in Greece right now where there are runs on banks. That's where having more deposits helps and where the potential downside is catastrophic rather than merely non-optimal.
It is, but only in the most limited fashion. Money sitting in bank accounts is doing very little to improve unemployment. Buying physical goods would be much better for that.
> One of the worst economic problems of recent years has actually been the lack of money just sitting in reserve to give the banks stability.
In a way, that's true although I wouldn't frame it that way. The banks could make loans and then sell those loans as investments -- they didn't need any money on hand for that. Increasing deposits, for example, wouldn't change anything.