It’s now clear the Bush Administration’s attempts to bailout stricken US banks has been a waste of time and effort as the slumping economy undermines all efforts to boost lending.

While the $US200 billion advanced or promised to troubled banks from giants Citigroup and Bank of America to small regional lenders has steadied confidence levels, it hasn’t stopped failures from rising (six last month and three last week), or generated more lending.

If anything, banks are keeping a tight lid on lending as they confront the slumping economy, frozen capital markets and rising levels of debt default among customers. It’s no longer a concern about capital.

It’s also the economy — there’s a concern about credit risk and it’s also very rational, compared to the irrational thinking, fear and despair seen in October’s survey when Lehman Brothers fell off a cliff and the whole financial system quivered.

The latest survey of senior bank loan officers (done every quarter by the US Federal Reserve) shows no easing in the tight controls on credit at banks, large and small, local and foreign, across America.

The results heap pressure on the Obama Administration to improve its new bailout package using the remaining $US350-$US400 billion in the fund from last year — it’s time to tighten the rules and introduce some form of draconian restrictions on salaries and expenses otherwise the whole process will be sunk in Congress, from both sides.

Last week’s fracas over Merrill Lynch bonuses of $US4 billion, Citigroup’s stupid continuation of the purchase of a $US50 million jet (until forced to abandon it amid public outrage) and the $US1.2 million spent on a new toilet and bathroom by former Merrill’s boss John Thain has made it harder for anyone in Congress to vote in favour of a revamp of just the rules of the Bush bailout.

There’s growing demands for more rules and now the Fed has revealed that all the help that it and the bailout fund has given to US banks has not produced any surge in credit or relaxation of controls. That’s even though most banks blame the worsening economy and rising risks of customer default for their caution.

The Federal Reserve survey showed that a majority of US banks made it tougher for consumers and businesses to get credit in the past three months even as lenders received taxpayer funds. There might have been a faint easing in lending standards, compared with the October survey, but it wasn’t significant.

“About 65% of domestic banks reported having tightened lending standards on commercial and industrial loans to large and middle-market firms,” the Fed said.

But its fears about the deepening slump and its impact on the credit standing of customers was the main reason for the tough line on lending. Only a quarter of those surveyed said concerns about their banks’ capital levels were a factor. As well the freezing of capital markets, especially the securitisation sector, the rising levels of failure among customers (a direct flow on from the slump) were also keeping banks from increasing lending.

The survey is regarded as an accurate assessment of US bank lending activity. It also revealed that demand for consumer and business loans continued to weaken as the economy deteriorated further.

Both politicians and taxpayers have expressed concerns that instead of lending, many banks are hoarding the cash, using capital to fund acquisitions or paying big bonuses (even though they have fallen from 2007’s high levels).

Some industry executives have maintained that they are still making new loans and extending existing credit lines to both consumers and businesses. JPMorgan Chase reckons it’s boosting lending, with a reported $US150 billion in new loans made in January, but there’s no way of comparing that with previous lending levels before the crunch hit.

One contentious deal is the $US22.5 billion advanced by five banks to Pfizer to help finance its $US68 billion takeover (cash, shares and debt) of rival drug group, Wyeth.

The banks are Bank of America Corp., Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., and JPMorgan Chase & Co. All but Barclays have received aid or helpful regulatory rules from the Fed or the US Treasury. They will share in hundreds of millions of dollars of fees and interest payments.