Bernanke: Financial System Still Struggles With Fallout From Crisis.

The U.S. financial system still faces a number of vulnerabilities five years after the onset of the financial crisis, pushing regulators to broaden their oversight over all facets of financial markets and firms, Federal Reserve Chairman Ben Bernanke said Friday.

Mr. Bernanke, speaking in Chicago, cited a number of risks that remain despite the wide-ranging efforts of lawmakers and regulators to overhaul financial markets in the wake of the 2008 financial crisis. Runs on money-market funds remain a risk, Mr. Bernanke said, and firms' reliance on short-term wholesale funding markets remains a concern.

"While the shadow banking sector is smaller today than before the crisis and some of its least stable components have either disappeared or been reformed, regulators and the private sector need to address remaining vulnerabilities," Mr. Bernanke said at a conference held by the Federal Reserve Bank of Chicago.

The Fed and other regulators are taking a more holistic approach to evaluating financial markets, Mr. Bernanke said, examining areas that pre-crisis may have received little attention.

The central bank is more closely following firms that pose a systemic risk to the economy, collecting more informed data on the interconnected nature of firms, and evaluating asset markets and the shadow banking sector for potential vulnerabilities, he said.

Notably, Mr. Bernanke didn't weigh in on the growing debate among regulators in Washington over capital standards for the banking industry.

The Fed and other regulators are finalizing a broad capital framework for the nation's banks, including special charges for the largest Wall Street firms, and there has been an increasingly public fight over how regulators might adjust those rules to better address concerns about the risks posed by systemically important firms. The central bank head echoed comments from fellow Fed officials about the risks posed by tri-party repo markets and other forms of short-term wholesale funding, which played a central role in the 2008 financial crisis.

Mr. Bernanke said progress has been made on the issue, with intra-day credit extended by clearing banks expected to be largely eliminated by the end of 2014. He warned, however, that the problem hasn't been resolved.

"One of the key risks is how the system would respond to the failure of a broker-dealer or other major borrower," Mr. Bernanke said. He also said regulators are paying close attention to how financial institutions are behaving amidst the current low interest rate environment, which has been in place for some time.

"We are watching particularly closely for instances of 'reaching for yield' and other forms of excessive risk-taking, which may affect asset prices and their relationships with fundamentals," Mr. Bernanke said.

Copyright © 2013 Dow Jones Newswires