Banks start with some capital, borrow in the form of deposits, and lend in the form of bonds, mortgages etc.
The regulatory capital ratio determines how much capital they must hold to support the assets.
That's one of the factors. But even in jurisdictions without regulations on capital ratio, banks tend to hold capital cushions.
The Scottish 'free banking' era in the 18th and 19th century is instructive here. (Canada had a similar arrangement.) In Scotland during that time banks regularly had about 2/3 deposits and 1/3 capital to finance their balance sheet, despite no fixed regulatory obligations on capital ratios.
Interestingly they barely held any reserves at all, perhaps 2% or less of assets.
These banks were extraordinarily solid and stable. And the arrangement contributed to Scotland's rapid catching up to England during their Industrial Revolutions.
Loans are assets
And people wonder why finite natural resources skyrocket in value.
All kind of assets can lose value overnight, be it stocks or real estate.
Conversely, when you deposit cash to a bank, you are actually creating a liability on the bank's balance sheet - as you might want your money back one day!