How about we start with "how banking used to work".
There are many people who want to be able to get at their cash whenever they want and know it is "safe". They are willing to hand cash to a bank, so long as that bank promises to be able to provide that cash "on demand" and the bank gives them either some services (magic cash teleportation via ATMs, or interest) in exchange.
Now this doesn't do much good for the bank. I mean, having cash, what good is it if you have to have it ready at all times for someone to take it out? So the bank cheats. It gets 100 people to give it 1000$ "on demand", and then it uses some fraction of that 100,000$ on projects it cannot pull the money out "on demand".
It then fakes having the 1000$ per person available "on demand" by betting that not everyone will want the money at the same time. A reserve of (say) 50,000$ would be more than enough. They can offer the customers 1% annual interest, and then find an investment that returns 3% annual, and make a tidy profit of 500$/year. Scale this up with more customers and bigger deposits and get rich.
But then a run on the bank happens; and the bank doesn't have the money on-hand to give to everyone. The bank now has to sell those assets. Quick selling non-liquid assets is costly, and it could result in the bank not having enough cash to satisfy everyone and give everyone their deposit back.
The riskier and less liquid the assets the bank invested the money in is, the bigger the risk that the bank will be "upside down" and a partial run will bankrupt the bank.
If the bank invests in stocks, the value of the stocks could drop 33%; what more, that is going to correlate with recessions when people start withdrawing more money from the bank (their savings for a rainy day) than they put in. What looked like a great deal (6% average returns!) now ruins the bank.
If the bank finds less volatile assets or more liquid assets that earn money, like loans with secured property, so long as the profit is enough they can pay the cost of getting cash (deposits) and still be able to make a profit.
In essense, the bank is in the business of term arbitrage; they take a whole bunch of people who (think) they want demand-money, and a bunch of people who want non-demand loans (mortgages, say), and they act as a middleman, faking the demand-money (as they don't actually have the cash) and using it to loan out non-demand loans.
Today banks work a bit differently, partly because they have access to the central bank and the right to borrow money from it "almost" at-will. In exchange for that power they have to maintain a certain mix of safe assets, like home mortgages on employment stable people with large down payments, or large stable government bonds, and avoid volatile ones, like stock market investments.