Bernanke says community finance hit by recession

WASHINGTON Wed Jun 17, 2009 2:19pm EDT

Federal Reserve Chairman Ben Bernanke's image is projected behind him as he addresses the HOPE Global Financial Literacy Summit at a community center in Washington, June 17, 2009. REUTERS/Jonathan Ernst

Federal Reserve Chairman Ben Bernanke's image is projected behind him as he addresses the HOPE Global Financial Literacy Summit at a community center in Washington, June 17, 2009.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - Specialized lenders that play an important role in low income communities have been pummeled by the recession and must look beyond their traditional sources of funding to stay healthy, Federal Reserve Chairman Ben Bernanke said on Wednesday.

Bernanke did not comment on the outlook for monetary policy or the economy in a speech at a conference on financial literacy.

Community development financial institutions operate in low-income communities and typically make loans for housing, business and schools. The organizations fill a valuable niche in supporting economic development in such communities, Bernanke said.

"The Federal Reserve recognizes that these financial flows are critically important for many low- and moderate-income communities," he said.

In the financial meltdown that began in August 2007 and the recession that officially hit four months later, such institutions have seen loan defaults rise and earnings slide, Bernanke said.

In addition to minimizing losses, community lenders may need to go to a wider range of sources for funding, he said.

One such step might be to become members of the Federal Home Loan Bank system, which provides funding to lenders to support homeownership with U.S. Treasury backing, Bernanke said.

(Reporting by Mark Felsenthal; Editing by Neil Stempleman)

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