U.S. financial model can be fixed, Bernanke says

By Joanne Morrison

RICHMOND, Virginia (Reuters) - Overseers of the U.S. and international financial system need to quickly put reforms in place to restore confidence in markets disrupted by a global credit crisis, Federal Reserve Chairman Ben Bernanke said on Thursday.

The current market unrest complicates the process of making changes aimed at erecting a firewall against future crises, Bernanke told the World Affairs Council, but swift action could soothe jittery financial markets.

"We do not have the luxury of waiting for markets to stabilize before we think about the future," he said. "Indeed, many of the necessary changes that have been identified -- including increasing transparency, improving risk management, and attaining better coordination among regulators -- could provide important support to the process of normalizing our financial markets," he said.

Bernanke spoke as finance ministers and central bank heads of the Group of Seven rich nations gathered for a Friday meeting in Washington, where they are expected to endorse steps to respond to a global crisis that was spurred by rising U.S. mortgage defaults.

Bernanke, the head of the U.S. central bank, acknowledged in response to questions that the economic crisis may be the most severe the United States has faced since the second World War.

At the same time, he said the current slowdown is nothing like the Great Depression of the 1930s, in part because the Fed has been far more proactive in its response.

Bernanke, whose academic studies focused on the Depression, said during that era the central bank allowed banks to fail, prices to fall and the money supply to contract, which contributed to the protracted slump.

"We now know the lessons from that," he said. "We are certainly going to make sure that the financial system remains in good functioning order."