WASHINGTON - FEDERAL bank regulators, seeking to address criticism about the US government's $700 billion (S$1 trillion) bailout plan, have issued new guidance to banks encouraging them to continue lending to credit worthy borrowers.

The new guidelines by the Federal Reserve and three other federal banking regulators encourage institutions to work with mortgage borrowers to avoid defaults. The guidelines also encourage the banks to set dividend payments for shareholders and compensation for executives with the current crisis in mind.

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. -- AP