Bernanke says too-big-to-fail no option

The U.S. Federal Reserve chair said Thursday thatregulators must be prepared in future to shut down big banks if their collapse threatens the broader financial system.

Ben Bernanke testified before a panel investigating the financial crisis in 2008.

"If the crisis has a single lesson, it is that the too-big-to-fail problem must be solved," Bernanke said before the Financial Crisis Inquiry Commission.

Bernanke also said it was impossible for the Fed to rescue Wall Street investment bank Lehman Brothers from bankruptcy in 2008. He said it didn't have enough collateral to secure a loan.

Lehman's former chief executive told the panel a day earlier that the firm could have been saved, but regulators refused to provide help.

The panel is coming to the end of its year-long investigation into the Wall Street meltdown.

Bernanke said bailouts are not a healthy solution and new U.S. financial reforms that allow regulators to close financial institutions before they bring down other banks and large investment firms will be an improvement.

Big banks a source of the crisis

"Too-big-to-fail financial institutions were both a source of the crisis and among the primary impediments to policymakers' efforts to contain it," Bernanke said.

"We should not imagine that it is possible to prevent all crises," he said.

"To achieve both sustained growth and stability, we need to provide a framework which promotes the appropriate mix of prudence, risk-taking and innovation in our financial system."

Bernanke led the economy through the financial crisis and the worst recession since the 1930s. The Federal Reserve took extraordinary measures to inject hundreds of billions into the battered financial system.

Last week he said the central bank is prepared to make a major new investment in government debt or mortgage securities if the economy worsened significantly.

Former Lehman CEO Richard S. Fuld Jr. testified Wednesday that the firm could have been rescued. But the regulators refused to help even though they later bailed out other big banks.

Bernanke disagreed. He said bailing out Lehman would have saddled the taxpayers with billions of dollars in losses.