Capital requirements are regulations that determine the minimum amount of capital a financial institution, such as a bank, must hold to ensure its stability and solvency. These requirements are designed to protect depositors and maintain confidence in the financial system by ensuring that banks have enough funds to cover potential losses. Regulatory bodies, like the Basel Committee on Banking Supervision, set these capital requirements based on the riskiness of a bank's assets. By maintaining adequate capital, banks can absorb losses and continue operating, which helps prevent financial crises and promotes overall economic stability.