State and federal financial regulators issued a joint statement on Friday encouraging banks and thrifts to lend prudently to small businesses.

The statement noted that small-business lending fell 1.8% between June 30, 2008, and June 30, 2009, and said "many of the responses by financial institutions are prudent in light of current economic conditions."

But the regulators said that "evidence suggests that financial institutions may at times react to a significant economic downturn by becoming overly cautious with respect to small-business lending."

Banks that make loans "after performing a comprehensive review of a borrower's financial condition will not be subject to criticism for loans made on that basis," according to the statement.

As expected, the statement cautioned institutions against making lending decisions based on a borrower's industry or geographic location. Examiners, according to the statement, will not "criticize institutions for working in a prudent and constructive manner with small-business borrowers."

The White House is pushing banks to unlock credit to small businesses.

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