Federal Reserve chairman Ben Bernanke said Tuesday financial markets are still "far from normal" but have improved as a result of the extraordinary liquidity measures of the US and other central banks.
"To date, our liquidity measures appear to have contributed to some improvement in financing markets," Bernanke told a conference of finance officials in Sea Island, Georgia.
"These are welcome signs, of course, but at this stage conditions in financial markets are still far from normal."
Bernanke made no comments on monetary policy or the economic outlook in his remarks sent by satellite.
The Fed chairman said the US and other central banks have been taking exceptional measures to keep credit flowing since a crunch that began last year and prompted a drying up of the important system of interbank lending, amid fears of heavy losses on US real estate.
Liquidity is better in several markets, Bernanke said, but "ultimately, market participants themselves must address the fundamental sources of financial strains -- through deleveraging, raising new capital, and improving risk management."
A major surprise came from the notification on March 13 that Bear Stearns was suffering a run on the bank. Until then, Bernanke said, "it was believed that primary dealers (of which Bear Stearns was one of 20) were not especially susceptible to runs by their creditors."
Over the weekend of March 15-16, the Fed and the Treasury decided they could not afford to let Bear Stearns go bankrupt and they came up with a financing package for a takeover by JP Morgan Chase.
"A bankruptcy filing would have forced Bear's secured creditors and counterparties to liquidate the underlying collateral," Bernanke said, at fire-sale prices in illiquid markets, and "a much broader liquidity crisis might have ensued."
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