How to revive the demand for credit in a poor business climate? Push down interest rates, of course. That's just what the government has been doing. So why won't the fix work?

For the answer, take a hard look at the nation's big banks. They are in trouble. It will take drastic action by Congress to mend their problems. And, until that happens, the economy is apt to stay sour.Banks have cut their key lending rate, responding to moves by the Federal Reserve. But read the fine print before deciding whether it's a true bargain.

The prime rate, having fallen for two years, is pegged at 8.5 percent. Yet anyone who tries to make a personal or a car loan at these low affordable rates is apt to get the cold shoulder.

Typically, bank loans on most credit-card balances run more than twice the latest prime rate. They are up there in the same zone as loan sharks charged for quick cash back in my old New York City neighborhood.

At the same time, depositors are getting the shaft. Banks are setting new records between what it costs them to borrow money and what it costs you to borrow from them.

Many reasons account for this huge spread, beyond pure greed. Banks seek to make up for the bad real estate loans that they made in the 1980s. Banks need to cover the losses of credit-card deadbeats, a growing group. Federal bank insurance rates are going up. Borrowers will subsidize the added premiums.

But the industry's problems run deeper. They cannot be solved by arcane fights in Congress over interstate banking or branching. In the 1990s, banks no longer want to be banks.

The job of a cow is to give milk. The job of a bank is to lend money to businesses and individuals who need it. But banks have become, as the economists say, risk-averse. In the main, they want to lend only to those who do not need to borrow.

Big borrowers increasingly look to the so-called secondary markets to float their loans. It is easier (and usually cheaper) for them to deal with insurance firms, pension groups, mortgage pools and mutual and money-market funds. Small start-up ventures still need banks for their initial capital. But banks no longer want to take chances on them.

When the story of the U.S. banking fiasco is written, Donald Regan deserves much of the blame. He once served as Treasury secretary and White House chief of staff. But the damage came earlier when he headed Merrill Lynch, the nation's No. 1 stock broker.

In the 1970s, Regan dreamed up the cash management account. That made it possible for upper-income people to put most of their investments - including their idle cash - into one handy nest egg.

Since Congress had barred banks from selling securities, they could not compete. In 1973, banks held more than 60 percent of the nation's financial assets. By last year, that ratio had plunged below 40 percent.

Pending legislation would allow banks to deal in stocks and bonds. That might help level the playing field. But it is hardly a panacea.

The administration wants to set up an elite system of rough and tough national banks. Foreign banks serve as the White House model. Japanese banks practically run that economy. And by next year, a London or Paris bank will be able to open branches in, say, Rome or Madrid.

But America still holds to a populist past that scorns big-town bankers. And small-town bankers contribute to congressional campaigns. So change will come only after a financial crisis forces Washington to make a major move.