Nowadays the bank regulation is a bit more complicated than simple reserve requirements, and the capital held in "safe" assets (central bank deposits, governmen

Nowadays the bank regulation is a bit more complicated than simple reserve requirements, and the capital held in "safe" assets (central bank deposits, government issued loans etc) is not there in the case if you need it (most of the time when you "need" your money, bank actually does not pay it out, but just changed whom it ows the money i.e. makes an account transfer), but it is there for the losses bank may make in their credit portfolio. A simple example: Bank has 90 deposits and 10 equity. That is used to finance 80 mortgages and 20 deposits in central banks. Now, if the deposit customers have full understanding what kind of mortgages the bank has issued, they can estimate how likely it is that more than 10 of the mortgages fail, bank goes bankrupt and the deposit holder does not get paid full. You see quickly that there is many ways how a bank kan reduce the risk in its credit portfolio. If the bank decides to lend only 10 and store 90 in central bank deposits, the risk of the bank losing more than 10 is quite small. but of course, you get more money from mortgages than from central bank, so you want to lend as much as you can to mortgages to maximize revenue. But then you need to pay also more to the (rational) deposit holders because of increased risk. You see also very quickly that even if the deposit holders had full understanding of the balance sheet, the calculations would be so difficult that wihtout regulation, most would inves their savings to banks that are riskier than what they think -> and lose their money.