With the economy floundering, perhaps the greatest challenge for banks and thrifts receiving capital infusions from the government is putting the money to use quickly.

The Treasury Department is counting on its $250 billion investment in the banking sector to stimulate lending, but bankers and other industry experts say loan demand is weak right now and they tick off several reasons why it might be several quarters before it picks up: Construction has ground to a halt; many businesses are reluctant to take on debt, even if they are healthy; and fewer consumers are buying homes or cars.

Moreover, banks continue to tighten their credit standards, unsure whether customers that look to be in good shape now will become credit risks later.

"I think it's unrealistic to assume that a capital infusion next week or the following week is going to instantly turn on a spigot, in particular given the pressures of a depressed economy," said John Koelmel, the president and chief executive of the $9 billion-asset First Niagara Financial Group in Lockport, N.Y. "It's going to take some time for the benefits of any initiative" — including the Treasury's Capital Purchase Program — "to be realized in a visible way."

And the bad economic news keeps piling up. On Friday, the Labor Department said that unemployment rose to 6.5% in October, the highest it has been in 14 years.

"You can see why banks are reluctant to lend," said Sung Won Sohn, a former bank CEO and now an economist at California State University. "The economy is getting worse, not better," he said. "Credit quality is going to deteriorate."

Most banks have not stopped lending, of course, but none are loosening their credit standards. Given the economic headwinds, keeping credit standards as they are — or tightening them, as many banks have done — will mean fewer borrowers can qualify for a loan.

Mr. Sohn said he believes the government should offer loan guarantees so that marginal borrowers can get loan approvals."You have to relax credit standards," just as the Federal Reserve has done with the discount window, he said. "If the overall goal is to prevent the economy from sliding deeper into a recession, then I think the government has to step in and be more aggressive."

First Horizon National Corp. in Memphis has won approval to get $866 million in Treasury money.

Though the $32.8 billion-asset company is shrinking its balance sheet by liquidating its national mortgage business, it aims to grow in its home state, said David Miller, the senior vice president for investor relations. "We're very much still in the lending business, and this capital will only facilitate that."

But he acknowledged that in the near term the economy is likely to mute the impact of the government capital injection on lending at many banks. First Horizon has been tightening credit standards for the past 18 months, he said.

"I think it's fair to say that, even with the additional capital, we are still in the business of making good risk management decisions," he said. "In a broadly weakening economy, we have to be very vigilant, so there are limits."

Mr. Koelmel said First Niagara has had loan growth all along, as it picks up business from larger competitors that are retrenching. First Niagara, which raised $115 million in capital on its own last month, has been approved for up to $186 million through the government program. That is enough lending power to add about $3 billion of assets, Mr. Koelmel said.

But deploying it all would take several years, he said, and the same is true for the entire $250 billion the Treasury is doling out. "It takes more than a quarter to achieve that kind of production," Mr. Koelmel said. "There's no switch that can be flipped here."

Total loans by commercial banks have been virtually flat for several quarters, according to an analysis of Federal Deposit Insurance Corp. data by Foresight Analytics LLC in Oakland, Calif. In the second quarter, total loans rose only 0.38% from the first quarter. And in the third quarter, the total grew 0.44%, to $6.38 trillion. (JPMorgan Chase & Co. is excluded from the figures. Washington Mutual Inc., the country's largest thrift, sold its banking operations to JPMorgan Chase last quarter, and including those assets would distort the commercial bank data.)

Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners LP, said that banks taking the government capital will feel pressure to lend so they can improve earnings.

Rising rates are an added incentive, he said. "Because so many institutions have pulled back from the marketplace, spreads have widened out, so the risk-adjusted returns are attractive."

But not all of the $250 billion will go into lending, he added. "A fraction of that will, maybe a quarter or less," he said. "A big chunk will go into acquisitions, and a big chunk will go to absorbing losses."

Many community bankers remain skeptical about the capital program's economic benefit. In a survey of 160 bankers by Pacific Coast Bankers' Bancshares in October, six in 10 respondents said they doubted the government capital would boost lending.

At least 10% of the banks that do business with Pacific Coast Bankers' Bancshares are "on a hiatus" from making new loans, said Chris Nichols, the president and CEO of its capital markets unit, Banc Investment Group LLC. For some, capital is tight, so they need to control growth, he said. For others, manpower has been diverted to working out problem loans.

Some community banks are reporting higher loan demand, he said, because borrowers are being shunned by larger competitors. But the banks actively lending are being selective about loan approvals because of the troubled economy.

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