Federal Reserve Chairman en Bernanke said the Federal Reserve may extend Wall Street's access to lending until 2009.
Speaking at the FDIC's forum on mortgage lending in Arlington, Virginia, Bernanke did not speak on economic outlook or monetary policy, but he did say Congress may have to heighten its oversight of investment banks. He also said he endorses a proposal for a dealer liquidation process.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," he said. "At the same time, we are taking measures that will serve over time to strengthen the primary dealers, other financial institutions, and the overall financial system."
Bernanke said the Fed is currently working with the SEC and dealers on capital and liquidity issues and urged the Treasury to take a "leading role" in closing firms. He also said loans to primary dealers might "weaken" discipline.
The Fed Chairman said the financial turmoil that has rocked markets since August underscores the need to find ways to make the financial system more "resilient and stable."
"I have noted several broad areas in which constructive work might be done, including improving the regulation and supervision of financial institutions, strengthening the financial infrastructure, and the possible development of a new resolution process for securities firms," he said.
"In the longer term, it is up to the Congress to determine whether still broader reforms are needed. Making that determination will raise a host of complex and challenging issues, but the stakes are commensurately high."
By Stephen Huebl and edited by Nancy Girgis