The So-Called Frozen Banking System Is Actually Regulatory Clog

Michael S. Rozeff has the best explanation:

With the banking system insolvent, the credit system can arise on its own if lenders can make arrangements to lend directly to borrowers while bypassing banks. Buffett was able to lend directly to GE and Goldman Sachs at a rate of 10% + warrants, which approximates a 15% penalty rate. (I thank Phil O'Connor for pointing this out to me.)

There is vast wealth locked up that is afraid to lend except at high rates. In the 19th century panics, commercial paper and other short-term rates would sometimes go to 60% or higher in a spike. That brings out the lenders.

We have so much regulatory clog in the system, from usury laws on down to specific prohibitions on a variety of intermediaries, that they find it impossible to fill in where banks are not. The system needs massive deregulation instead of the Fed creating more high-powered money. Even the formation of new kinds of companies and money market funds to make such loans is a slow process because of the regulation.