From a prudential regulatory perspective, such a pattern in financial institutions creates additional concerns, particularly as it poses a threat to continued progress toward a safer and more stable financial system.
On the down side, reserve requirements can act as a strain on commercial banks and thus limit financial intermediation. BIS Review 79/2001  1  In line with Latvia’s economic development and to narrow the spread between deposit and lending rates, the Bank of Latvia has, step by step, lowered reserve requirements.