The guidelines seek to address criticism that banks obtaining funds from the $700 billion rescue plan could simply use the money for their own purposes rather than helping struggling homeowners and the overall economy.
Critics are concerned that banks, which are getting $250 billion through government purchases of their stock, are not using the money to boost lending to customers, one of the main reasons why the economy is in a crisis.
"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," according to the regulators' guidance.
The Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision said all financial institutions were expected to follow the new guidelines, even those not receiving federal assistance.
