The money multiplier can collapse for two reasons. First, it can be that individuals mistrust banks and they decide to take their deposits away from their bank and keep their liquidity as cash ("under the mattress"). Second, it can be that commercial banks are worried about the future and they accumulate an unusually large amount of liquidity in the form of reserves without lending them to individuals or businesses. This is what we have observed since the summer of 2008, a very large increase in the amount of commercial bank reserves at the central bank and very little lending. The chart below (for the US economy) shows the collapse of the money multiplier at that time. We also see that in recent months the money multiplier has stopped declining although it remains at a very low level (below 1).
While the money multiplier was falling, the Federal Reserve increased dramatically the monetary base. This increase translated into a much smaller increase in the money supply because of the falling multiplier. As the multiplier stabilize and very likely starts growing towards its natural level (when banks stop holding large amount of reserves), the money supply will start growing. It will then be the signal to the central bank that it is time to reduce the monetary base in order to keep inflation under control.