Considering that the cost of bank liquidity requirements is clearly so high, they should provide commensurate stability to the financial system. Unfortunately, there is good reason for skepticism on this front.

First, liquidity requirements cannot reduce the risk of a panic outside the commercial banking sector, like the panic in 2008 that included the otherwise solvent investment banks Goldman Sachs and Morgan Stanley, the affiliated broker-dealers of large banks and money market funds.

Second, bank stores of government assets, while large, are still finite. Therefore, while those assets may reduce banks’ need to hold a fire sale of harder-to-value assets, like small-business loans and mortgages, it does not eliminate the risk of a panic. Depositors and short-term creditors still have an incentive to run in a crisis.

Worse still, bank liquidity requirements may worsen a crisis as banks are forced to hoard liquid assets and are thus unable to lend to one another. That’s the worst medicine: In a crisis, you want banks to lend to other institutions that need money.

Several prominent conservative economists and I have recently called for the Federal Reserve to establish a framework for any Fed lending during a financial crisis.

A key contributor to the crisis in 2008 was that the Fed was simply not prepared, and therefore the market had no confidence that any financial institutions would be protected. Rather than relying on costly and untested liquidity requirements, what we need is for the Fed to have a plan for how it would value and lend against private collateral, including small-business loans and home mortgages, held by solvent financial institutions. Solvency determinations during a fast-moving crisis are too difficult. The Fed must plan ahead to protect the financial system by making loans immediately to solvent banks based on their balance sheets and avoid lending to insolvent institutions, such as A.I.G. in 2008.

Liquidity requirements can’t save us from the next crisis, and they can make that crisis worse. In the meantime, all the money stockpiled in banks would be better spent invested in companies to spur economic growth. It’s time that small businesses across the country stopped paying for Wall Street’s mistakes.