WASHINGTON — Federal regulators issued a joint statement Wednesday encouraging banks and thrifts to lend to credit-worthy borrowers.
"At this critical time, it is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met," according to the statement from the Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision.
As expected the guidance avoided any new mandates, instead urging banks to follow broad principles of good lending practices. The agencies said lending to strong borrowers is good for business and the economy as a whole.
"The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers," the guidelines said. "If underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential damage to the economy as well as the long-tern interests and profitability of individual banking organizations."
The regulators also stressed the need to strengthen capital levels and specifically targeted dividends.
"Banking organizations should not maintain a level of cash dividends that is inconsistent with the organization's capital position, that could weaken the organization's overall financial health or that could impair its ability to meet the needs of creditworthy borrowers," the statement read.
"Poorly designed" compensation packages can also hurt banks in the current climate, the agencies said, if they create perverse economic incentives.