What tool does the government use to regulate and keep banks from over-extending themselvs?

The government primarily uses capital requirements as a regulatory tool to ensure banks maintain a certain level of capital reserves relative to their risk-weighted assets. This is enforced through regulations such as the Basel Accords, which set minimum capital ratiOS that banks must adhere to. Additionally, stress tests are conducted to evaluate banks' resilience under adverse economic conditions, helping to prevent over-extension and ensure financial stability.