Both the problem you mention and what Box mentions about above are happening.

The TED Spread is mostly a measure of what Box is talking about though. The TED spread is the difference between what banks are charging each other and what T-Bills are getting. If the spread is high that means banks are favoring T-Bills right now. And considering that the interest on T-Bills is nearly zero right now, it has to be because they don't trust the other banks.

The problem you are talking about is reflected more in the difficulty people are having with getting big loans for finance. Banks don't have the money they used to because their capital is shrinking, and thus they are limiting themselves to the safest and best bets for themselves.

Of course, those two problems are interrelated. A big part of the reason for the first problem is the second problem. Shrinking capital is making banks insolvent and since the banks don't know who is likely to go, they don't trust anybody. And the second problem also causes the first, because it is so expensive for banks to borrow right now, it costs banks more to cover any shortfalls. So they have to keep more money on hand rather then use it for loans.

Jay