From the investopedia page: If bank lending is constrained by anything at all, it is capital requirements, not reserve requirements; however, since capital requirements are specified as a ratio whose denominator consists of risk-weighted assets (RWAs), they are dependent on how risk is measured, which in turn is dependent on the subjective human judgment.
https://www.investopedia.com/articles/investing/022416/why-banks-dont-need-your-money-make-loans.asp
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If banks have 100K in liabilities (the money in their customers accounts) they’re required to have a certain amount of assets to cover those liabilities, these assets include things like cash and bonds but also the value of the loans that people are repaying.
They can’t include the full value of the loan as some people won’t pay them back, so they need to calculate what percentage of each loan they’re likely to get back, if it’s 90% then they can only count 90% of the loans value, that’s the risk weighting.
There’s no perfect way to decide if it’s 90% or 95% or 87% though, human judgement has to be used so 2 banks with the exact same assets might come to different conclusions about how much capital they represent.
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