Short Answer: Banks are afraid to lend / there is an incentive to NOT lend.

Long Answer: This is due to four reasons.

1) They can park money at the fed window, get a minute amount of interest on that money - but that minute amount of interest is enough to pay some of their interest obligations to deposit accounts - and it is completely risk free.

2) The stress tests / regulators are strongly encouraging to reserve much more than what is traditionally required. The stress tests are overboard. Some of the conditions are, while possible, so far from likely as to basically render them impossible. It would be like the insurance industry running a test to show what would happen if a Katrina-sized hurricane hit somewhere on the US coast every three days for a month. Yeah, most of the insurance industry would collapse. Yeah, that's not likely to occur.

3) Somewhat related to #1, because banks have such low payout requirements, they don't need to take much risk with deposits. They can make strategic loans to very high credit profiles and make enough money to carry the day.

4) Banks are nervous about real estate. Bubbles are forming in some markets. There are lots of economic questions - while unemployment is low, underemployment is high, student loan balances are sky high, and you have all the federal debt/deficit concerns.

Want evidence of a lending environment that is nervous? Look at FHA loans. The insurance on these things is paid by the borrower, and fully protects the lender. If the loan goes bad, the bank is fully reimbursed. There is almost NO RISK on these loans. FHA requires only a credit score of 580 for their basic product. Yet, good luck finding a bank that will lend at 580. Most want 640. Why? Because the feds told the banks that if the banks screw up the underwriting, then the banks will have to eat the loan. If the banks write loans at 580, there is no margin for error. Because the banks have been threatened by the feds, they are giving themselves large room for error. Thus, 640.