Advertisement
YOU ARE HERE: LAT HomeCollections

Feds tell banks to boost lending

Three agencies also expect firms to help some mortgage holders avoid foreclosure.

November 13, 2008|Tom Petruno | Petruno is a Times staff writer.

The government's program of using taxpayer funds to bolster banks' capital was supposed to be "passive" -- meaning, Uncle Sam wasn't going to take an active role in managing the businesses.

But a joint statement on bank lending issued Wednesday by the Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. hardly sounds passive.

In the statement, titled "Meeting the Needs of Creditworthy Borrowers," regulators' frustration with still-frozen credit markets is evident. And they're now essentially demanding that banks boost lending.

Tony Crescenzi, bond market strategist at Miller, Tabak & Co., calls the statement "a strong-arm tactic that ostensibly takes advantage of the power that the government now has over banks and other financial institutions."

The memo doesn't request action; it "expects" action.

For example: "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."

Although regulators of course nodded to the idea of lending responsibly, they warned that "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-term interests and profitability of individual banking organizations."

The agencies also said they expected banks to work with borrowers to avoid "preventable foreclosures" and to regularly review their executive compensation policies "to ensure they are consistent with the longer-run objectives of the organization and sound lending and risk-management practices."

And a final point that won't give any comfort to bank shareholders fearful of more government intervention: Regulators warned banks against paying dividends to shareholders at a level "that could weaken the organization's overall financial health or that could impair its ability to meet the needs of creditworthy borrowers."

The agencies said they would take action if they determine that a bank's dividend rate is "inconsistent with sound capital and lending policies."

--

tom.petruno@latimes.com

Advertisement
Los Angeles Times Articles
|
|
|