Banks are fronting a decent chunk of

Pfizer's

(PFE) - Get Report

$68 billion proposed acquisition of

Wyeth

(WYE)

, meaning that the mega-deal may receive scrutiny from Capitol Hill.

To reshape what was characterized as a Wall Street bailout, leaders in Washington vowed that the $350 billion provided to the financial sector would support new lending to consumers and small businesses, and save jobs that would otherwise be lost during a more severe economic contraction.

But now, a consortium of lenders -- including the largest recipients of taxpayer dollars from the TARP program -- is funneling $22.5 billion into the Pfizer-Wyeth pairing. The deal will inevitably lead to more layoffs, as the pharmaceutical companies seek to gain efficiencies from their pairing, while average Americans are still awaiting relief from such layoffs, diminished household wealth and tight lending standards.

The situation seems ripe for political grandstanding, but experts say that the banks -- among them

Bank of America

(BAC) - Get Report

, Merrill Lynch,

Citigroup

(C) - Get Report

,

JPMorgan Chase

(JPM) - Get Report

,

Goldman Sachs

(GS) - Get Report

and

Barclays

(BCS) - Get Report

-- would be foolish not to support the deal, which comes with very attractive terms. They would also be foolish to weaken underwriting standards for consumers and businesses just to gain political capital. After all, issuing loans to subprime mortgage borrowers was the spark that seemed to ignite the economic storm that pushed a large swath of the banking industry to the verge of collapse.

Pfizer is one of a few U.S. corporations that still holds a "AAA" credit rating, making it top-notch candidate for loans. Lenders also secured interest rates of 7% to 9%, and a stipulation that they can walk away from the loan if Pfizer's ratings drop to a certain level.

"Strategically the merger seems to make a great deal of sense, financially the merger makes a great deal of sense and I would not be an advocate of the U.S. government dictating the way companies do business," says Daniel Alpert, a managing director of Westwood Capital. Neither Alpert nor Westwood hold any positions in Pfizer or Wyeth.

Additionally, while reports continue to emerge that banks have continued to cut lending even after receiving taxpayer dollars, they are skewed by several factors. First, consumers have cut back on purchases, weakening demand for loans. Those who do seek financing for the purchase of a new home, car or just about anything else, are also buying assets that have declined sharply in value, shrinking the size of loans as well.

Furthermore, while a recent analysis in

The Wall Street Journal

found that lending at some of the nation's largest banks dropped last quarter, Ladenburg Thalman analyst Richard Bove disputed the paper's findings. Bove criticized the paper's methodology, calling the results "inaccurate and misleading" and provided his own that showed lending increased by 0.1% to 15.6% at all the institutions, except for one whose results were skewed by Lehman Brothers' bankruptcy.

While it may be unclear how much banks have cut lending to credit-worthy borrowers outside of anecdotes, there is little doubt that M&A financing has plunged dramatically since the start of the credit crisis. According to Dealogic, financing for U.S. acquisitions and buyouts dropped 55% last year to $280 billion from $615 billion in 2007. The number of deals dropped 49%, to 363 from 709 the year earlier.

Alpert notes that even the leverage used in the Pfizer-Wyeth deal "is far lower than it would have been in the boom years of M&A years and private equity."

The bottom line is that while banks are understandably worried about spiking default rates, economic conditions and the nearcollapse of their own industry, their business is lending. Alpert notes that if banks were able to find "a credit-worthy small business or a credit-worthy individual that can afford not only to borrow money but to repay it, then by all means the banks should lend," but that such a situation is rare in this economic climate.

David Gulley, a professor of economics at Bentley University, who holds shares in both Pfizer and Wyeth, points out that the U.K. government added stipulations to its own TARP-like bailout program to spur bank lending, but the provisions did little to help its economy. Indeed, it also did little to help its banking sector, as Barclays and the

Royal Bank of Scotland

(RBS) - Get Report

have essentially been nationalized.

"Even if banks were in perfectly healthy shape, they would be curtailing lending right now, because credit ratings have declined and there's a general decline in demand for borrowing," says Gulley. "And if you combine the decline in

asset values with the increased credit standards, you'd predict nothing else but decreased lending."