Geithner s Treasury and Congressional politicians are telling banks publicly to expand lending and boost the economy. At the same time Bernanke s Federal Reserve is telling banks to increase liquidity as the banks see little loan demand from qualified borrowers.

Adequate capital and adequate liquidity are two completely separate concepts as Bear Stearns and Lehman found out the hard way. Capital is purely an accounting concept, generally consisting of common and certain preferred equity. Liquidity on the other hand is the cash either available or that can be generated to meet funding obligations in the event of deposit withdrawals or a freeze in short-term credit.