U.S banks all cashed up, nowhere to lend

The latest U.S. effort to get more money flowing to consumers assumes that there are plenty of credit-worthy households eager to borrow and spend.
That may not be the case. Rising unemployment and foreclosures are driving more people out of the "prime" credit category, in which banks are still fairly willing to lend. At the same time, consumer confidence has fallen so far that even wealthier people with little trouble getting credit are cutting their spending.

U.S. Treasury Secretary Henry Paulson announced last week that he was
redirecting a $700 billion rescue package to focus on consumer loans in an
effort to spur lending and get the economy going again. It was the third incarnation of a program launched last month that was initially touted as a way for the government to buy bad assets from banks and unclog credit channels. Instead, it has been used primarily to buy stakes in banks in the hope that the capital cushion would encourage lending.

So far, there is little sign that banks are loosening their grip on cash,
much to the frustration of the U.S. government and countries around the world that rely on a healthy U.S. consumer to drive economic growth.
That will no doubt be a major topic this week as investors brace for
another round of grim economic data from many advanced economies and leaders in Washington consider whether even more spending is needed to stave off a deep recession.

Charles Dallara, managing director of the bank lobby group Institute of
International Finance, said that just because banks have billions of taxpayer
dollars in hand, it was unrealistic to expect normal lending to resume
immediately. "Capital does not automatically create credit-worthy borrowers," he said. "In an environment where banks are already recovering from serious losses on
earlier lending, it's not only natural -- it's inevitable that there is a
substantial degree of caution built in to lending activities."