You deposit $100 dollars at two banks, the banks lend to each other until they have created 10x as much bank money than they have cash. The cash didn't go anywhere, it is still there but if the bank were to pay it out it would not meet its regulatory requirements and be shut down even though it might have $1000 worth of assets if you give it enough time.

The problem essentially is that the money can be withdrawn all at the same time but the obligations cannot.