There's an interesting video where several of the world's most esteemed monetary experts got together to honor ex Bank of England Governor Mervyn King, and in the process acknowledged they needed a financial mechanism that affects the general economy. They can't figure it out exactly, they just know finance is very important to the economy.
In the meantime, they continue to countenance, if not encourage, the persecution of banks. Every quarter there's a new lawsuit brought against the banks. The news Tuesday night was about the Libor scandal, which, surely needs punishment, but it's just getting old and the damages are unlimited, so banks are naturally wary. Can we fast track these things? Add to this that regulators are giving banks extra scrutiny for everything they do, and naturally most banks are afraid to lend. Thus, all this new money goes to high powered money that simply pulls in a little interest at the Fed.
Here's a set of relevant data. These are data from the bank index through December 2012, which I pulled from Ken French's website. It shows bank stocks at an all-time low at this stage after the last business cycle peak. Banks aren't lending because they are a political punching bag for populists, afraid of regulators and litigators. As Hyman Minsky used to say, you need rich banks. We don't have them. With banks in their negative vega zone, they simply aren't incentivized to lend.