March 20, 2009 / 4:08 PM / 10 years ago

Bernanke says must fix "too big to fail" problem

PHOENIX (Reuters) - The United States needs a safer way to shut down large nonbank financial firms without destabilizing the entire financial system, Federal Reserve Chairman Ben Bernanke said on Friday.

U.S. Federal Reserve Chairman Ben Bernanke speaks at the Council on Foreign Relations in Washington March 10, 2009. REUTERS/Yuri Gripas

“We have such a regime for insured depository institutions, but it is clear we need something similar for systemically important nonbank financial entities,” he said in prepared remarks to a community bankers convention in Phoenix.

“Improved resolution procedures for these firms would help reduce the too-big-to-fail problem by giving the government the option of safely winding down a systemically important firm rather than keeping it operating,” he said.

Bernanke said the central bank has “generally been encouraged” by the market response to its myriad of lending programs.

If a newly launched program called the Term Asset-Backed Securities Loan Facility — or TALF — works as planned, it should ease credit constraints on consumer, business and mortgage loans, he said.

Reporting by Tim Gaynor in Phoenix; Writing by Emily Kaiser in Washington; Editing by Neil Stempleman

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