When banks don't behave like banks

One of my classmates remarked she works for a small community bank and capital requirements pose a tougher constraint on her bank than the big ones.

My professor responded that all bankers complain about capital requirements.

I'm sure my classmate's point had some validity, but it was my professor's response that made me wonder why bankers complain about capital requirements. 

Although capital requirements are not the same thing as reserve requirements, both seem to force banks to "save for a rainy day" i.e. force banks to anchor themselves when irrational exuberance sets in. 

I can't speak to capital requirements at the moment, but reserve requirements appear to be obsolete:

Pollin (2012) and Mason (2011) among others have pointed out financial institutions (and corporations) are sitting on hoards of cash.  The trend for excess reserves is clearly increasing (see graph above).  This means the banks are holding money instead of loaning it out. In other words, banks have stopped behaving like banks, they have reduced their intermediation between the financial and real economy. Obviously loaning money out to circulate could increase spending and create jobs, so why aren't the banks making these loans?

One reason could be that they still deem it too risky.  Another reason (which seems more likely to me) is the opportunity cost to loaning it out is too great.  Banks have a great incentive to keep hoarding excess reserves:

The interest they receive on their excess reserves (IOR) has been .25% consistently since about 2009.  The spike at the beginning of the graph reflected the logic that banks needed an incentive to strengthen their balance sheets, stop making loans, to reduce the risk of insolvency (You can see from the first graph banks did not hold excess reserves prior to the crash).  Now the IOR banks receive is higher than the interest banks must pay on loans they take out:

 

 

In other words, they can make profits with no risk by borrowing at .08% and receiving interest of .25%.  The incentive structure is causing banks to stop behaving like banks. With a "new normal" of a low fed funds rate, there doesn't seem to be any force that would alter this trend. If this argument is correct, it has relevance to increasing income inequality and supports the secular stagnation hypothesis.