NEW YORK (CNNMoney.com) -- Washington's quest to get big banks to make more loans only seems to get more challenging.
After repeated calls by lawmakers over the past year, regulators now appear to be picking up the baton, demanding that top lenders help cover the credit shortfall, particularly as small banks have become increasingly preoccupied with managing their commercial real estate losses.
"I do think that larger banks do need to do a better job of stepping up to the plate here," Federal Deposit Insurance Chairman Sheila Bair said last week.
Over the last year, the total number of loans and leases outstanding for the nation's largest banks has fallen by $464.2 billion, or 8%, according to FDIC data, far faster than their small-bank peers.
Banks have become more cautious when underwriting new loans out of fear of making the same mistakes that helped fuel the crisis. Financial firms continue to charge off loans that have turned sour as well.
More importantly though, consumers and businesses remain reluctant to take on new debt.
Thirty-four percent of banks reported weaker demand for commercial loans during last year's fourth quarter, according to a survey of bank officers published last month by the Federal Reserve. Just 9% of those lenders surveyed reported an increase.
"All of these indicators of loan demand gibe with what we hear consistently from bankers: demand from creditworthy borrowers continues to be weak," said John Dugan, the Comptroller of the Currency, in front of a House committee last week.
Banks and regulators share blame. But make no mistake. Big banks have the ability to lend more if they choose.
Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), the nation's three biggest lenders, had a combined $246 billion in unused home equity lines of credit at the end of last year, according to research firm SNL Financial.
"[Banks] have the capacity to make loans to any category of borrower," said Jennifer Thompson, senior analyst for Portales Partners. "It is not that they don't have the liquidity to do that."
The supply and demand for new loans however is just one part of a far more complicated picture that big banks face when it comes to extending credit.
Bair and other regulators may be demanding that big banks ramp up their lending, but behind the scenes agency examiners are allegedly adopting a slightly different message. Experts said regulators are urging bankers to show a little more restraint on new loans.
Regulators have fired back at such accusations, noting that they have delivered a consistent, but fair message to bankers. But James Chessen, chief economist for the American Bankers Association, contends that this remains an ongoing complaint among bankers.
"I liken it to a backseat driver with the banker trying to navigate the potholes in a rough economy and they are being second guessed," said Chessen.
Some top banks have already publicly pledged to heed Washington's demands. Bank of America, for example, said late last year it planned to increase lending to small- and medium-sized businesses by $5 billion.
But regulators have yet to define how much capital banks will have to hold at any given time. There is also still a lack of clarity about what might make it into the final draft of the forthcoming financial regulatory reform bill.
Matt Albrecht, equity analyst for Standard & Poor's, said this confusion is preventing big banks from opening the lending spigots even further.
Self-described 'Last of the Mohicans' is still fixing typewriters after 55 years. More
The top 5 consumer complaints have to do with identity theft, debt collectors, imposters, telephone companies and banks. More