On November 12, 2008, the FDIC, Federal Reserve, OTS, and OCC jointly issued an Interagency Statement on Meeting the Needs of Creditworthy Borrowers.  This new release is a broad statement that covers both lending practices and restructuring mortgages and addresses dividend policies and executive compensation.  We encourage every bank CEO to carefully review this Interagency Statement as an initial glimpse into the direction that the federal banking regulators appear to be headed.

As we’ve previously noted in our commentary, we believe that any future regulations will be placed on the industry as a whole and not merely on those that participate in the TARP Capital program.  We believe this Interagency Statement lends credence to our position.  While the Interagency Statement initially notes the Treasury’s program to make new capital widely available, the Interagency Statement provides that “it is imperative that all banking organizations and their regulators work together to ensure the needs of creditworthy borrowers are met,” and that “each individual banking organization needs to ensure the adequacy of its capital base, engage in appropriate loss mitigation strategies and foreclosure prevention and reassess the incentive implications of its compensation policies.”

For bankers already planning to participate in the TARP Capital program, this Interagency Statement may provide some guidance (and comfort) as to what the regulators will expect regarding expansion of the flow of credit and modification of residential mortgages.

For bankers who were not planning to participate in the TARP Capital program, this Interagency Statement may lead to a reconsideration of the relative risks of participating versus not participating.