1)So a bank can make loans for several times greater than the actual assets they have on hand. So if my $1000 deposit allows for a $9000 loan to someone else at let's say 8%, why do I get almost nothing back if anything from making the deposit? Why isn't there more competition between banks to hold people's money? Why aren't there unsecured savings accounts with huge APRs?
This was sort-of answered above, but wanted to make sure it was clear. What 9:1 leverage means is that if the bank has $1000 of its own money (equity, generally from initial proceeds of the sale of stock plus retained profits, and a bunch of other miscellaneous accounting gobbledy-gook), it can lend out $9000, but only if it borrows $8,000 from someone else. Ideally, they want to borrow from depositors because this is the cheapest money available, but could also borrow that money from other banks or from people who buy bonds. But, they must actually have the $9,000 in order to lend it.
As to the last part, there are a few reasons that I can think of:
A) There is some competition. See Ally Bank or Capital One 360.
B) It is a place you can store your cash that is zero-risk (because of FDIC) and 100% liquid. Low-risk + high liquidity = low interest rate. The banks do want your deposits, but they also want to maximize their earnings. The more they pay you, the less they make from lending that money. Further, if they take in too much in deposits and can't lend it all out, they are stuck paying you interest but not making anything from your money. A bank with surplus deposits may lower rates to
discourage more deposits.
C) Remember, that 8% is before the costs of servicing the loan (buildings, employees, mailings, compliance with regulations) and defaults. The bank actually makes much less than 8% on that loan at the end of the day.
2)Why can't a microlending site like Lending Club leverage this for its investors? from my understanding if I deposit $1000 on such a website, it can be loaned out as $1000 distributed amount various loans. Why is the ratio 1:1 here when a traditional bank gets up to a 1:9 ratio?
You could leverage yourself through Lending Club today, by borrowing through LC, then turning around the money and investing it in LC loans. If you have very good credit, and borrow at a low rate, then invest in lower-graded loans, you would pocket the difference. This is exactly what a bank's "net interest margin" is. If you were diversified across a large number of loans, it may not even be that risky. However, the various fees that LC extracts from the process would severely cut into your margin, so it's not really worthwhile (I looked into a while ago, mostly as a thought experiment). There are plenty of better investments out there.