What do banks retain for future use?

The correct answer is that banks retain reserves for future use. Reserves are the portion of a bank's deposits that are held in cash or as deposits with the central bank. They serve as a safety net to ensure that the bank can meet its short-term obligations to depositors and manage liquidity. Maintaining adequate reserves is crucial for the stability of the banking system, as it protects against unexpected withdrawals and helps the bank comply with regulatory requirements.

While other terms like assets and capital are important in banking, they refer to broader concepts. Assets encompass everything that a bank owns, including loans and securities, while capital pertains to the bank’s own funds used to absorb losses. Funds, on the other hand, generally refer to money that a bank has available for transactions and lending but does not specifically denote the retained amount designated as reserves.