This is basically right, except what you call "reserves" is actually "regulatory capital" (a form of equity). Banks are also required to keep liquid reserves,

This is basically right, except what you call "reserves" is actually "regulatory capital" (a form of equity). Banks are also required to keep liquid reserves, but the purpose of reserves is different. https://en.wikipedia.org/wiki/Capital_requirement https://en.wikipedia.org/wiki/Capital_requirement