Echoing comments he made on May 22, Fed Governor Randall Kroszner said the U.S. housing sector will recover gradually as an excess of home inventory is reduced.

Speaking on 'Financial Market Developments and Credit Conditions' in Boston, Kroszner did not address the economic outlook or interest rates.

"Rehabilitation in the mortgage securitizations markets, which have been particularly hard hit during the turmoil of the past year, will be a gradual process that will take time," he said.

He said banks have raised $80 billion in capital this year, but that they should continue to raise more.

"While the recent ability of many financial institutions to raise capital from diverse sources has been encouraging, additional capital raising by financial institutions would support the extension of credit to households and businesses, and thus economic activity," Kroszner said.

"Furthermore, larger capital cushions will not only provide a more solid footing for the broader economy, but will place firms in the position to benefit from profit opportunities as conditions in the financial markets and the economy evolve," he added.

Kroszner also said strains in the market have eased "somewhat."

By Stephen Huebl and edited by Cristina Markham