What is the difference between bank reserves and bank capital?

What is the difference between bank reserves and bank capital Introduction: The Backbone of Banking Hello, everyone! Welcome to our video on the distinction between bank reserves and bank capital. When it comes to the stability and functionality of financial institutions, these two elements are essential. Let's dive in! Defining Bank Reserves Bank reserves refer to the funds that banks hold in their accounts with the central bank. These reserves are a portion of the deposits made by customers. They act as a safety net, ensuring that banks can meet their obligations, such as honoring withdrawal requests. Additionally, bank reserves are crucial for maintaining the overall stability of the banking system. Understanding Bank Capital On the other hand, bank capital represents the net worth of a bank. It is the difference between a bank's assets and liabilities. Bank capital serves as a cushion against potential losses. In the event of a financial downturn or unexpected liabilities, a bank's capital acts as a buffer, absorbing the impact and preventing the institution from becoming insolvent.