Economy ailing but on the mend, says Bernanke

Lawmakers should “look very hard” at the bursting of asset bubbles that hurt the economy, said Federal Reserve Chairman Ben S. Bernanke.

And it will take time for the economy to rebound, even with government efforts to calm financial markets and check the credit crisis, he said this afternoon in a speech to The Economic Club of New York.

“Stabilization of the financial markets is a critical first step, but even if they stabilize, as we hope they will, broader economic recovery will not happen right away,” Mr. Bernanke said.

“Economic activity will fall short of potential for a time.”

Mr. Bernanke also said government officials will continue to use all their tools to restore stability in financial markets.

It was also important to keep a “diverse” banking industry, he said, noting that the increased concentration of financial institutions is a concern.

The United States also has a “too big to fail” problem among its largest financial institutions, Mr. Bernanke said, in which a firm going under could threaten a market collapse.