Banks and other financial institutions should track how the federal money or guarantees they received helped them boost "prudent lending" and efforts to help at-risk borrowers avoid foreclosures, the Federal Deposit Insurance Corp (FDIC) said on Monday in a directive issued to the roughly 5,100 state-chartered banks and savings and loans for which it is the primary regulator.

Periodic reports

"Banks are expected to document how they are continuing to meet the credit needs of creditworthy borrowers," the directive says. "The FDIC expects that ... (institutions) will deploy funding received from these federal programmes to prudently support credit needs in their market and strengthen bank capital."

The agency called on banks to include a summary of that informa-tion in their periodic reports and financial statements.

The FDIC directive applies to:

the Treasury Department programme in which the govern-ment is injecting US$250 billion in banks and other financial companies by buying shares in them.

Several Federal Reserve initiatives to provide temporary loans that have totalled around US$2.25 trillion.

The FDIC's programme of three-year guarantees for as much as US$1.4 trillion in new loans between banks.

The FDIC action comes amid bipartisan criticism that the Bush administration's handling of the first US$350 billion of the financial rescue programme has been unfocused, confusing and inconsistent.

Critics have complained that the taxpayer money has had few strings attached and has not been used effectively to address the nation's housing crisis.

President-elect Barack Obama's economic team is developing a "comprehensive set of investment principles" that would put restric-tions on how the second US$350 billion is spent, limits on executive compensation for banks and other companies receiving funds, and a plan to address rising foreclosures.

Positive changes

The explanations the FDIC is asking financial institutions to provide will allow banks "to tell their stories", said Wayne Abernathy, an executive vice-president of the American Bankers' Association. "I think bankers will respond to that favourably because I think we've got a good story to tell."

The story could include examples of positive changes in communities brought about through lending by local banks, said Abernathy.

Among the banks that have received the most funds from the various federal programmes are Citigroup Inc, Bank of America Corp, JPMorgan Chase and Co and Wells Fargo and Co.

Scores of smaller banks also have been recipients, including Zions Bancorp, Regions Financial Corp and Western Alliance Bancorp.

A congressional panel overseeing the Treasury programme said in a report last week that the department failed to answer several of its questions concerning how the banks are spending the taxpayer money and the government's overall strategy for the rescue.

- AP