Its A Wonderful Life has a nice bit on this.

Banks get money for loans from a couple of sources, but one of the primary sources is their account holders. When you deposit say $1,000 with the bank they don't take that cash and stuff it into a safe being kept there until you come back to pull it back out. They mark that you deposited $1,000 and then loan that money to another customer so they can earn a return on the interest. Banks rely on the idea that the majority of their customers will not come to withdraw all of their assets in a short time frame. They don't have enough money to repay all the money in their customers accounts. It's been loaned out or invested in other financial products. If too many people try to withdraw too much it can trigger a run on the bank as people panic and try to get their money out before the bank runs out of money to hand back.

In the U.S. there is a government protection for the majority of the populace against losing money due to a bank run. It's the FDIC (Federal Deposit Insurance Corporation). This protects up to $250k in each type of financial deposit category covered. So if an FDIC covered bank fails and you had $80k in savings there you won't lose your $80k.

Another source of funds is the Federal Reserve (in the U.S.). This is the bank that literally creates $$ and loans it to other banks. The cost of these loans affects almost all other loans down the chain. The Fed increasing its loan rates is one reason why mortgage rates and other loan rates have been rising over the last year-ish.