U.S. lawmakers urged federal regulators Wednesday to encourage healthy banks to increase lending to creditworthy borrowers rather than hoarding capital.

Some U.S. banks have said they are having trouble balancing regulators’ demands that they maintain large capital cushions during the credit crisis, while not pulling back on lending.

Scott Polakoff, acting director of the Office of Thrift Supervision, said some bank examiners are being too stringent in making sure banks limit their risks in this economic environment, which can lead to a contraction of credit.

"There’s an element of truth to those statements," Polakoff told a House Financial Services Committee hearing on lending standards. "Examiners are human, they’re going to respond to the environment."

Lawmakers said they are hearing daily complaints from consumers, businesses and even universities who say their credit has been slashed despite having good financial records.

"These are fairly specific assertions," said Barney Frank, a Democrat and chairman of the panel. "We think that, while there’s always a problem of bad loans, there’s a very big problem of not enough good loans."

Other regulators were more defensive.

A representative from the Office of the Comptroller of the Currency, which oversees the nation’s largest banks, said: "We haven’t ordered our examiners to crack down on banks."

U.S. Federal Reserve Governor Elizabeth Duke said banks that have experienced losses and hold less capital need to manage risks properly to ensure their viability.

Duke also said it is important that regulatory supervisors not place "unreasonable or artificial constraints" on lenders.

Executives from banks told lawmakers they are getting mixed messages from their regulators.

Michael Menzies, chief executive of Easton Bank and Trust Co., said many community banks are scared of making good loans. Bank examiners are being "overzealous and unduly overreaching" by second-guessing bank activities and accounting practices.

"Community banks are ready and willing to help in the economic recovery by lending to small businesses and consumers in their communities. However, the current bank regulatory climate is causing many community banks to unnecessarily restrict their lending activities," Menzies said.

Rep. Donald Manzullo, R-Illinois, pleaded with the bank regulators to listen to the complaints of community banks.

"They’re under siege from bank examiners," he said. "You’ve got to listen to them."

(Reuters)