Why Aren't The Banks Lending?

But when you get down to it, the banks are only doing exactly what the psychological premises of self-interest predicts they would do. If you had money, would you lend it in this environment? Sure we can talk about how they should have realized that people couldn't pay on the loans that they made, and we can talk about how the banks should have realized that a good deal of the loan payments were being made from other loans, but what good would that discussion do? The real question is what does our economy look like if there were no lending? I submit to you that we are just beginning to see that kind of economy. No longer will our economy be propped-up by debt. We will finally get the economy that we deserve. And if we want to keep the banking industry alive as government-funded zombies, then deflation will do the dirty work.

Interbank Lending Rate Falls... again

LIBOR, or the rate that banks charge one another for three month loans, fell once again. Additionally, RBI now wants banks to cut rates even more. Going by regular economic textbooks, there should be no reason as to why lending should not be going on, but this is not a regular economic situation. Something a little deeper, perhaps?

"Interbank lending rates affect the wider economy by determining the costs of loans to households and businesses. They had spiked higher since the start of the financial crisis, and have only been falling gradually as governments and central banks around the world announced a raft of measures to stimulate the global economy and financial sector."