> 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.