If you’re borrowing $400 from a friend or a credit card company, you’re still borrowing it and can’t pay cash out of pocket for it.

The fact that you're borrowing money doesn't mean you don't have money. There's a reason credit cards are more popular than debit cards. Fees, rewards and contract terms usually make it far cheaper to borrow and pay back, rather than pay out of one's savings.

For some reason, banks clearly prefer to have 5$ in deposits and 1$ in credit, rather than 4$ in credit.

And that's not even getting into matters of liquidity. In the modern world of zero interest rate policies the savings instruments that actually produce meaningful income can't always be turned into cash efficiently. Imagine a landlord selling a property he owns, just because he doesn't have 400$ right now, and you'll see what I mean.