Bernanke Urges Troubled Banks To Raise More Capital

May 15, 2008 2:35 p.m. EST

Washington, D.C. (AHN) - Federal Reserve Board Chairman Ben Bernanke said Thursday that banks and securities firms to keep raising capital to improve their balance sheet following credit crisis.

Bernanke speaking to its audience at the Chicago Federal Reserve said that financial institutions and lenders need to deleverage and improve their ability to manage risk and to avoid deeper damage to the U.S. economy.

"Firms are hunkering down," Bernanke was quoted saying by Bloomberg.

"They have at least partially replaced the losses with new capital raising, but not entirely. They are being rather conservative in making new loans, which has implications for the broader economy."

Bernanke praised the financial firms as they have been raising capital after taking billions in writedowns due to bad mortgage loans or investments.

According to him the executives at senior level in the firms need to step up in a leadership role to strengthen risk management. He added that even the regulators need to bolster their oversight.

"It is clear that supervisors must redouble their efforts to help organizations improve their risk-management practices," Bernanke was quoted saying by The Associated Press.

"We have focused on the institutions in most need of improvement, but we will continue to remind the stronger institutions of the need to remain vigilant, particularly in light of the ongoing fragility of market conditions," he added

So far, banks and securities companies have reportedly raised about $244 billion of capital since July, after they posted writedowns and credit losses of as much as $333 billion.

However, he cautioned by stating that the conditions of the credit markets remain vulnerable and that the financial firms, large and small, must stay proactive while raising new capital, which would benefit the U.S. economy.

"I strongly urge financial institutions to remain proactive in their capital-raising efforts," Bernanke said in the text of his speech, according to Bloomberg.

"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.''