The return of crisis?

Bank Results during the last week in the US have brought back the fears of armagaedon. Exactly 4 months after the Lehman Collapse and the rescue of Merrill and the momentous decision of Investment Banks such as Goldman to convert into Commercial Banks in order to live for "another day", banks are again at crossroads. Their capital depleted by the writedowns of more than one trillion US Dollars, banks are unable to handle the high levels of toxic assets and MTM impacts. Banks are in need of more capital eventhough they have already received about two hundred billions dollars of capital and several billion dollars worth of guarantees and loans. They need to cut the size of the balance sheets now that their results for last quarter of 2008 show more losses and the size of the capital cannot suppport the current levels of leverage on their balance sheets.
Thus, the low interest rates and the deluge of liquidity are of little use as these cannot be turned into advantages due to balance sheet constraints as well as the lack of quality borrowers due to demand destruction.
Now, new plans are being drafted to handle the balance sheet problem i.e., capitalisation level plus the toxic assets problem. One plan is to take out toxic assets from banks and create a new bank that would hold these. The new bank would be capitalised and would borrow to fund the assets. Hopefully, in due course the bank would sell the assets once markets recover and it can be wound up if the plan succeeds. Another plan is to let banks sequester the bad assets on the balance sheet and allow a one-time concession on capital and other norms for such assets in view of the current extraordinary situation. The healthy part of the bank could be capitalised and can hopefully get into business.
While the first one seems cleaner, memories from the SL scandal in the US may come in the way. At that time Banks were allowed to sell their problem loans/assets at inflated price levels (relative to their quality). However, in the given situation since toxic assets and capital are constraints to orderly lending, one of the plans will most likely be put into action.
However, in the given situation this could only help to bring comfort to depositors and lenders of such banks while borrowers are unlikely to benefit immediately. Why? Because demand destruction is not yet complete and only a resurgence of demand can bring in demand for funds.
Thus, in the interim, while the health of banks is taken care of, they would not really lend. So, what would they do? They will go and buy more Treasuries. The logic is simple - buying Treasuries gives enough returns considering the near zero funding rates for banks, capital requirements are minimised and there is no NPL problem. So, the crisis for banks may be solved but the real economy is unlikely to benefit.