BIS or US government who do you listen to if you are a bank

The BIS is calling top banks to Basel to discuss "excessive risk taking". They are worried that risk taking may be moving back to pre-crisis levels. On the other hand, the US government has been urging banks to lend more and reduce the amount of excess reserves. It should also be noted that the government wants banks to improve their capital ratios. Depending on who you talk to from government, you will get a mixed message.

So what should banks do? Exactly what they are doing. Hold a lot of cash. Be careful and increase transaction based business to boost profits. Play the yield curve which has gotten steeper and do not commitment to longer-term lending.

The result is tight credit for those who do not have other capital markets options.