Banks are expected to have a minimum amount of capital in order to be in business. This is for the protection of shareholders, depositors and the economy in general, but the current credit cycle creates a problem where maintaining a minimum capital base will restrict the potential growth of credit even if there are low interest rates from the monetary authority. The Fed has lowered rates, we have an upward sloping yield curve and the Fed a balance sheet is available, but the amount of lending going on in the US is actually decreasing.
It is hard to lend if your capital base is declining and your capital base will continue to decline if you show mounting losses and no new profits to shore up capital. Hence, the current crisis has capital requirements in conflict with the objectives of the Fed which is to have more lending activity. This is a problem in a deleveraging world.
Regulation needs to be in place that will stop the erosion of capital through less marking of losses on existing loans or some relief on capital standard so that new lending can occur. You can lower rates, but that does not mean that loans will be made. This is a variation on the classic liquidity trap problem. The credit crisis will be with us for some time.
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