Bernanke: Credit Crisis Isn't Over Yet

Meanwhile, Bernanke did say the Fed stands ready to expand to increase the size of the Fed's term auction facility if needed. The TAF has already been tripled since the extraordinary liquidity provision was set up in late 2007.

In addition, the Fed has recently expanded the use of its so-called discount window to provide emergency liquidity to investment banks, like Citigroup C, Bank of America BAC and Lehman Brothers LEH. It has lent out Treasury securities to financial institutions against illiquid collateral, like mortgage-backed securities, through a separate Term Securities Lending Facility.

Those measures appear to have calmed financial markets to some degree, and Bernanke's speech on Tuesday was largely an explanation of the Fed's actions, which have raised questions in the market about moral hazard since the U.S. taxpayer could ultimately be on the hook for the risks it has undertaken on behalf of the financial industry.

Bernanke said the Fed can provide liquidity to financial institutions in times of crisis in order to head off a panic by investors. He did not address the controversy over what new regulatory frameworks may be appropriate in light of the Fed's recent expansion of its role in the market.

He did stress that the crisis still lingers, noting that "strong participation" at recent TAF auctions even after the recent expansions in auction sizes reflect the persistence of funding pressures on financial institutions. He also said depository institutions have borrowed "significant amounts" under the primary credit program for terms of up to 90 days.