In his strongest comments yet, Federal Reserve Board Chairman Ben Bernanke says strengthened regulation of financial markets is required to stem excessive risk taking.
Chairman Bernanke says there must be greater oversight of banks, mutual funds, and other financial institutions. In remarks at the Council on Foreign Relations in Washington, Bernanke called for a unified approach to replace the existing system of fragmented and often weak regulation.
Last week, Bernanke complained that some high-risk financial derivatives like credit-default swaps were completely unregulated. Excessive risk taking has been identified as a principal cause of the credit squeeze that has evolved into a financial crisis and global recession.
"It has surprised us in being more severe than we anticipated. But again, I think the main lesson that has been learned is how powerful and pervasive these financial market effects can be," Bernanke said.
The priority of policy makers, said Bernanke, must be repairing the financial system so that banks and other institutions regain strength and resume normal lending. He said such action is a pre-condition for economic recovery.
"If we can do that, then I think there is a good chance that the recession will end later this year and that 2010 will be a period of growth," he said.
Looking ahead to the emergency meeting of leaders of 20 advanced and developing economies next month in London, Bernanke said coordinated strategies are needed to combat the worst global downturn in 40 years.
Meanwhile, in Tanzania, the head of the International Monetary Fund, Dominique Strauss-Kahn, said the global crisis is only now beginning to impact the world's poorest countries. He said the slowdown could result in millions being thrown back into poverty.
Addressing a conference on African development, Strauss-Kahn said economic growth in Africa is likely to fall back to the three-percent range, half the average of what was achieved during the past five years.