Is the following statement about why banks can fail correct?if banks use there excess reserves to make loans,then that means they use the...

The whole question appears to be somewhat confusing.
Perhaps the best way to clear the various doubts expressed in the question is to
describe some basic facts about the banks and how they may or may not
fail.

Firs thing to understand that banks primarily lend
out of the public money deposited with them. The banks are required by law to have some
minimum percentage of their own equity, but a large percentage of the funds they have
comes from the depositors who deposit their savings there. There is nothing wrong or
undesirable in it. As a matter of fact this one of the major advantage of banks. They
help channel savings of individuals to for use by others who require
it.

Banks fail primarily for two reasons. First, the the
bank unable to recover money form its borrowers. This results in bank making losses in
bad and unrecoverable loans. The bank may then fail because it may not have enough money
left to repay to all its depositors.

The banks may also
fail if too many depositors suddenly withdraw all their deposits. In this case, the bank
may not have ready cash to repay all the depositors, because most of the money has been
lent out by the bank to borrowers and, although the borrowers are likely to repay the
loans when due, it is not possible to get back this money from them immediately. In this
case the bank fails more because of panic created among the public, rather than actual
lack of funds.

These days banks and governments take some
precautionary steps to prevent failure of banks. One important measure is that all banks
are obliged by law to maintain some minimum reserve of funds with them which should not
be loaned out to borrowers. Part of this fund is used for make payment to depositors
against their routine requirements. A substantial portion is deposited with a central
bank belonging to government, so that if there is sudden increase in withdrawal, it can
be met from this amount with central bank.

Finally, please
note that banks do not create any money when they give loans to borrowers. The loan only
amounts to transfer of money belonging to bank and its depositors to the borrowers. The
borrower also will have to return this money later.