(RTTNews) - Federal Reserve Chairman Ben Bernanke said Wednesday that the stabilizing economy still faces a long road on its way to a full recovery.
Speaking before the Dallas Regional Chamber, Bernanke said that unemployment, home foreclosures and weak bank lending will keep economic recovery subdued.
"We are far from being out of the woods," he said in prepared remarks. "Many Americans are still grappling with unemployment or foreclosure, or both. Cities and states are struggling to maintain essential services. And, although much of the financial system is functioning more or less normally, bank lending remains very weak, threatening the ability of small businesses to finance expansion and new hiring.
The chairman said, however, that he was optimistic that unemployment should slowly decline throughout the year, which will lead to increased optimism among consumers and help spur the recovery.
Bernanke also discussed the actions taken by the Fed in response to the financial crisis, saying that the central banks strong and unprecedented response prevented a full economic collapse.
"The Federal Reserve developed innovative programs to provide well-collateralized, mostly short-term credit to the financial system," he said. Without this credit, otherwise sound financial institutions could have been forced to dump assets onto the market, further depressing prices, or even been driven into failure, intensifying the crisis."
The central bank chief added that the actions taken by the Fed have helped to stabilize key global financial markets in the areas of short-term funding, corporate bond issuance and stocks.
Bernanke then turned his attention to what must be done to ensure that financial crisis similar to the one in 2008 does not happen again, particularly in regards to the U.S.' regulatory framework.
"We need tough new rules to make financial institutions safer and to constrain excessive risk-taking, and we need a regulatory framework that gives the Federal Reserve and other agencies the ability to address risks to the financial system as a whole," he said, adding that the notion that some financial firms are too big to fail must end.
"To do that, we urgently need a new resolution regime for large, complex, and interconnected financial firms, similar to that already established for banks," he said. "To end too-big-to-fail, the new regime should permit regulators to close a failing firm and impose losses on shareholders and creditors."
Bernanke went on to say that the central bank is making fundamental changes to its own everyday operations to ensure that its own supervision is more effective and so it can better identify risks to the financial sector.
"For example, we have adopted a more multidisciplinary approach that makes better use of the wide range of expertise and skills at the Federal Reserve--in economics, financial markets, payments systems, and other specialties, as well as bank supervision," he said.
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