and by the federal reserve's measures to increase liquidity and support the functioning of key credit markets. together, these actions helped to bolster confidence in our lending institutions, which enabled them to access funds and make loans. as contemplated by the enabling legislation, tarp funds have also been used on a targeted basis to prevent potentially disorderly failures of systemically critical financial institutions – failures that would have had highly adverse consequences for the system as a whole. these actions, together with similar measures in other countries, have brought greater stability to our financial system. moreover, injections of new capital are moderating the powerful pressures on the financial institutions that received the injections to deleverage by selling assets and pulling back from new lending. stabilization and slowing the pace of deleveraging are critical first steps toward more - normal credit conditions. the federal banking regulators, pursuant to their joint november 12 statement, are working to help banks ensure that they are fully meeting the needs of creditworthy borrowers. 1 bank lending to creditworthy borrowers is good for the economy, but it is also good for the profitability of banks and supports their safety and soundness. we have strongly encouraged our examiners to work constructively with banks as they perform the careful analysis needed to identify sound lending opportunities. regarding the future, the remaining tarp funds will play an essential role in further strengthening the financial system and restoring normal credit flows. an important use of these funds will be to step up efforts to avoid preventable foreclosures. preventable foreclosures harm not only the affected borrowers and their communities but also, through their effects on the housing market, the broader economy and the financial system as well. although a number of efforts are underway to address the problem of preventable foreclosures, more needs to be done. generally speaking, the most attractive approaches to reducing preventable foreclosures fall into two main categories. the first category features highly streamlined re - underwriting processes with the goal of modifying large numbers of troubled mortgages quickly. based partly on its experience working with troubled borrowers at indymac federal bank, f. s. b., the fdic has proposed a plan of this type. to encourage an aggressive approach to loan modification, the fdic plan would provide partial insurance against the losses stemming from borrower redefaults on modified loans and would also pay servicers $ 1, 000 for each loan they modify. an alternative program in this same category

with u. s. supervisors ; we want these banks to comment on any documents addressing cross - border issues, so that aig members can tackle these issues together. the authorities here want to hear your observations on how to avoid creating undue burdens on foreign banks while at the same time retaining our ability to shape the risk - measurement and management methods employed by banks in our own markets. summary basel i must be replaced for the large, internationally active banks of the world because it no longer produces an adequate indicator of the strength of such banks, and, moreover, that indicator does not vary as risk changes. basel ii is designed to improve risk management and measurement, to link required capital to risk, to focus supervision more closely on these variables, to make such relationships more transparent, and to facilitate a level playing field for banks that compete across national borders. critics concerned about the pro - cyclicality of basel i should compare the likely postbasel ii pattern with the pattern of earlier years ; in doing so, they should consider the extent to which better risk management, a more risk - sensitive capital requirement, and the rise in market discipline that comes from greater transparency will modify bank lending patterns, particularly the unintended acceptance of risk during expansion periods. the u. s. authorities are proposing that in this country the a - irb and ama approaches of basel ii be required of the largest, most internationally active banks that meet certain size and foreign - activity criteria and be permitted for any other bank that meets the infrastructure prerequisites of the a - irb and ama approaches. all other banking organizations would remain under basel i. the proposal would not permit any banking organization in this country to operate under the standardized or foundation irb approaches of basel ii. we will be working with the aig at basel to minimize any issues that may arise because of different capital regimes for the consolidated operations of foreign banks and the choices available to their subsidiaries in the united states. u. s. supervisors will cooperate with foreign supervisors to provide any required inputs from u. s. subsidiaries of foreign banks that the home - country supervisors need for their consolidated supervision. the u. s. banking agencies are also willing to consider possible transition methodologies to assist foreign banks that want to use irb here to adopt the a - irb and ama approaches. we urge the u. s. bank subsidiaries that are commenting on the u. s. anpr to advise both u. s. and home - country supervisors of