Here is another reason QE3 will do little to change bank behavior or encourage lending. US commercial banks are awash with liquidity these days as deposits hit a new high (approaching $9 trillion).
|Deposits at US commercial banks (source: FRB)|
Banks are already struggling to put cash to work. The rate of deposit growth exceeds that of new loan demand and credit approvals. The bottleneck is not the availability of liquidity - there is $1.77 trillion of available lending capacity waiting on the sidelines. If the Fed were to implement a new asset purchase program, the level of liquidity in the banking system would increase even further without any material change in the rate of credit expansion.