U.S. Pressures Banks to Keep Up Lending, Warns on Dividends
The Federal Reserve and other U.S. regulators told banks to maintain lending to “creditworthy'' borrowers, and warned them against levels of dividend payments that would curb lending and cause a deeper economic slump.
Government supervisors “will take action when dividend policies are found to be inconsistent with sound capital and lending policies,'' according to a joint statement today from the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Office of Thrift Supervision. Dividends shouldn't be at a level that would hurt a bank's ability “to meet the needs of creditworthy borrowers short-term cash loans.''
Regulators will “encourage'' banks to “practice economically viable and appropriate lending activities'' to avoid deepening the economic downturn, the agencies said.
They also urged lenders and servicers to adopt “systematic'' ways to modify troubled loans. In addition, banks' executive compensation policies should “prevent short-term payments for transactions with long-term horizons,'' the statement said.