NEW YORK ( TheStreet) -- Banks are in a holding pattern these days, waiting to hear specifics from regulators about new capital requirements.

The situation has, for a large part, put the brakes on lending, industry consolidation (beyond swooping in on failed institutions), and even capital investment in their existing businesses, at the same time as economists, market observers and government officials are urging banks to put money to work in order to aid in the broad economy's recovery.

"Regulatory uncertainty is having a chilling effect on all operations," says Scott Talbott, a lobbyist with The Financial Services Roundtable, a trade group representing Citigroup ( C - Get Report), Bank of America ( BAC - Get Report), General Electric ( GE - Get Report) and other large financial companies.

The issue comes up again and again in conference calls with analysts, though the impact of this uncertainty is often overlooked.

"It's still too early to tell exactly where the capital regulations are going to come out," said Goldman Sachs ( GS) CFO David Viniar, during the bank's presentation related to its third-quarter results last month. "We manage our risk very, very conservatively and always have, but I think we're still in a wait-and-see mode."

One reason that U.S. regulators seem to be dragging their feet is a desire for domestic standards be comparable with international rules, although it's not as if the rest of the world has arrived at any sort of consensus.

"You've got speed cameras on the road without knowing what the speed limit is," says Kinner Lakhani, London-based analyst at Citigroup who follows European banks such as Deutsche Bank ( DB)and UBS ( ubs).

Lakhani says U.S. and European banks currently operate by different standards, and some countries are taking a tougher stance. Switzerland, for example, is adopting standards for the Core Tier 1 capital ratio metric that could be materially higher than what is expected to be the international norm.

A further issue is that banks have to address how they will fund themselves. A recent study by Moody's Investors Service says banks in several countries will see a steep rise in funding costs as they look to lock in longer-term funding and wean themselves off government guarantees.

"Capital is a 2009 story and funding could increasingly become a 2010 story," Lakhani says.

Mark Fitzgibbon, analyst at Sandler O'Neill, thinks U.S. legislators and regulators are not waiting for international consensus, despite frequent discussion of international standards set by the Basel Committee on Banking Supervision.

"I think Basel's kind of a joke," Fitzgibbon says. "It's resulted in a lot of paperwork, a lot of fees for the people involved in it, but it really hasn't done much."

Fitzgibbon expects more clarity from U.S. legislators and regulators in about six months.

"There will at least be broad brush strokes of the new plan in that timeframe," he says.

Given the near-term uncertainty, however, big banks like JPMorgan Chase ( JPM - Get Report) and Wells Fargo ( WFC - Get Report) aren't doing much lending, a fact that is partially obscured by large acquisitions they have made in the past 12 to 18 months, which make it hard to pinpoint exactly where and how their balance sheets are growing.

Despite these obstacles, some smaller banks have grown their balance sheets without doing acquisitions. Sandler's Fitzgibbon cites Short Hills, N.J.-based Investors Bancorp ( ISBC - Get Report) and Smithtown Bancorp ( SMTB), on New York's Long Island, as two examples.

Of course regulatory uncertainty is not the only reason banks aren't lending. There is also the fact that their standards are higher, and fewer borrowers are able to meet them.

"On the residential mortgage side sure if you went back to 100% LTV loan-to-value loans that were no-doc you'd probably have a lot of people willing to take out mortgage loans again, but when you start looking at 80% LTVs and full doc, you know the demand isn't quite as strong," says Jeff Harte, another Sandler O'Neill analyst.

In other words, the fact that banks aren't lending may be a good thing.

"This economy does not need more debt," says Dick Bove, analyst at Rochdale Securities. "I don't think you can look at the consumer and say, you know, I really believe consumers are underleveraged and they need more debt."

He took the idea further with regard to corporations, striking an ironic tone: "I think what the corporations really need is more debt. I mean that's what makes them successful. It's not selling products or investing in capital expenditures or hiring people. What makes them successful is debt. They need more."

But lending is not the only thing being put on hold while regulators and legislators sort out the new rules. Acquisitions, dividend increases, stock buybacks, hiring -- to some extent all these things are waiting for Washington. And until the clarity on capital requirements comes, a convincing recovery in the economy may have to wait as well.

-- Written by Dan Freed in New York.