The credit channel is broken

Even the prospect of borrowing at zero and lending at 5 cannot seem to generate credit growth. In addition, its not just the scarcity of positive NPV projects, but the prospect of being shut out of the capital markets for future financing needs. You would conserve cash as well if you did not know if your business will have future access to credit.

By David HenryFeb. 16 (Bloomberg) -- U.S. lenders, criticized for being too reckless in the past and too stingy in the present, have been sitting on as much as $1.29 trillion in cash, equal to a record 98 cents for every dollar of existing business loans.The ratio of cash to corporate loans has more than quadrupled from 21 cents in June 2008, according to Jan. 13 Federal Reserve data compiled by Bloomberg. Corporate loans shrank 14 percent to $1.32 trillion during that period as bankers tightened standards to curb record defaults and meet demands by regulators for more liquidity.Banks are leaving more cash idle amid slack demand from borrowers throughout the economy and concern that regulators will require more liquidity to forestall another financial crisis. That’s crimping profit, and the result may be a drop in returns on equity by about 33 percent from pre-crisis levels, according to analysts at KBW Inc.