Ben Bernanke, the chairman of the Federal Reserve, told Congress yesterday that turbulence in financial markets continues unabated and said more regulatory powers are needed.

Ben Bernanke, the chairman of the Federal Reserve, told Congress yesterday that turbulence in financial markets continues unabated and said more regulatory powers are needed to prevent another collapse of a big Wall Street bank like Bear Stearns.

"The financial turmoil is ongoing," Bernanke said. "Our efforts today are concentrated on helping the financial system return to more normal functioning."

He said Congress should give a single federal regulator enhanced power to set standards for the capital, liquidity and risk management of investment banks. Reforms in the oversight of these firms must recognise the distinctive features of investment banking," Bernanke said, adding that federal authorities must take care not "to induce a migration of risk-taking activities to less-regulated or offshore institutions".

The Fed chief was testifying before the House of Representatives financial services committee.

"In light of the Bear Stearns episode, Congress may wish to consider whether new tools are needed for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy, together with a more formal process for deciding when to use those tools," Bernanke said.

The Fed is discussing with other federal agencies overhauling regulation of financial institutions following the near-bankruptcy of Wall Street investment bank Bear Stearns and market turmoil sparked by the collapse of the sub-prime mortgage market.Bernanke did not specify which federal agency needs more power but it is widely assumed he means the US central bank.

The world's largest banks and securities firms have reported $404bn (£200bn) in asset writedowns and credit losses since the start of last year. The Standard and Poor's Financial Index, which includes 89 banks, brokers and insurance com-panies, has tumbled nearly 50% during the past 12 months.

Bernanke in recent days has called for stronger oversight of big Wall Street firms, which are regulated by the Securities and Exchange Commission. Those firms have been given unprecedented - albeit temporary - access to tap the Fed for emergency loans, a privilege that has been granted for years to US commercial banks, which are more tightly regulated.

With no end in sight to the credit crisis, the Fed may extend the lending privilege to investment banks into next year, Bernanke has said.

The Fed chairman did not refer to the economy or interest rates, topics he will discuss during his semi-annual testimony before the House of Representatives and Senate next week.

The Fed's rate-setting panel holds its next meeting in early August and is expected to keep the cost of borrowing steady at 2%.