Bernanke urges banks to raise capital if needed

By Ros Krasny

CHICAGO (Reuters) - Recent turmoil in financial markets underscores the need for banks to hold "generous" capital cushions, U.S. Federal Reserve Chairman Ben Bernanke said on Thursday as he urged them to actively raise money.

"I strongly urge financial institutions to remain proactive in their capital-raising efforts," Bernanke told a conference on bank structure and competition in Chicago. Analysts said the Fed was saying that banks need to step up their efforts to get past a credit crisis just as the U.S. central bank did.

"Doing so not only helps the broader economy but positions firms to take advantage of new profit opportunities as conditions in the financial markets and the economy improve," Bernanke said.

He said he has been encouraged at the success of many banks in raising new capital and praised foreign-owned sovereign wealth funds for the positive role they were playing as suppliers of badly needed capital.

"They have generally provided unleveraged, patient money, which is what is needed here. They have not asked for extensive control or management of the firms," Bernanke said. "So I think it has been very constructive to have had this source of funding coming into our banking systems."

CLEAR OUT LOSSES

Economist Cary Leahey of Decision Economics in New York said Bernanke was clearly telling banks to carry on with their efforts to not only raise capital but get rid of less productive assets as they have been doing since a credit crunch developed last year so that they can resume lending.

"The Fed thinks it's done a lot to ease the credit crisis and now the financial institutions have to pick up the ball and run with it," Leahey said.