That’s a common misconception. What you have described is called the money multiplier model, and is absolutely incorrect. That’s exactly what the Bank of England paper is saying.

An additional point of reference is the Basel rules, which are pretty clear on this, if you care enough to read a few dozen pages of banking regulation.

> “And with what do the banks lever up their capital? (What is the indirect object of that sentence?) The answer, of course, is deposits.”

Incorrect. It’a a little more abstract than that. Bank credit doesn’t exist as anything but numbers in a database. Deposits are IOUs from the bank, which are increased when the bank lends, and mortgages are IOUs from people to the bank. If everything just stayed within the single bank, they wouldn’t need any existing deposits at all, or any reserves! What you need the reserves for (one source of which is incoming deposits from other banks, or cash deposits, or cheques from the Government) is interbank settlement. But the bank needs only a small fraction of the actual volume of transactions, because they are generally going both ways, and transfers are only a small fraction of the actual amount of bank credit that exists. That’s how the bank maintains solvency.