OK, I understand that governments could attempt to regulate the amount of loans that banks can make by imposing a minimum level of reserves. For example, there could be a limit of 10%. Thus, if Bank A has reserves of £1 million, central government regulations could prevent Bank A issuing more than £10 million in loans.
But let us suppose that there is another bank, Bank B. Bank B lends Bank A another £1 million, allowing Bank A to issue a further £10 million in loans. Since there are presumably no real restrictions on who Bank A lends to, it seems obvious that Bank A could, for example, lend Bank B £1 million (potentially via a subsiduary in the Cayman Islands). This sort of mechanism could continue to generate more and more debt, with no way to control it - effectively turning into a gigantic Ponzi scheme. (By the way, if this is indeed possible, I'm confident that the banks will not have waited for me to post this comment on the positive money website to take advantage of such loopholes in the system).
If this picture is true, then taking the away the commercial banks' priviledge of money creation should be priority number one of any rational government. Money creation has to be done in one place and one place only - by central banks under the supervision of elected governments.