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.

“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.