Right.
“…and the bank deposits created as a result flow into the economy as new banknotes as the public demands more of them.”
The important part is the part about the public demanding banknotes.
Federal liabilities consist of federal reserve deposits and federal reserve notes - currency. So of course reserves decrease when the public chooses to hold money as currency. And public demand for banknotes has increased in recent years. But the banks have no control over that.
You’re missing the point. Reserves permit banks to lend when lending becomes fashionable again. If you’re really interesting in learning I would suggest reading rather than arguing.
Dr. Econ of the San Francisco Fed is a good place to start.
It references this excellent pdf article - Why Are Banks Holding So Many Excess Reserves?
You may find these actually support your argument but hardly for the reasons that you’ve put forth. I’ll be interested in seeing if you can enlighten us.