Hard to Figure

We've got a credit crunch, and we need the banks to make more loans, but we ALSO need the banks to increase their capital... right? Anyone see a problem there? Well, the banks do:

Banks say they are caught in a frustrating Catch-22: How can they make more loans when creditworthy borrowers are scarce, their balance sheets are saddled with bad debt and regulators are hounding them to horde cash?

But the regulators shout:
You'll figure something out!