The U.S. needs to develop a mechanism to unwind systemically vital institutions, Federal Reserve Chairman Ben Bernanke said on Friday, adding that until the financial system is repaired, an economic recovery will be difficult to achieve.

Speaking at a convention in Phoenix, Bernanke did say that recent actions taken by the Federal Reserve should help lower consumer interest rates such as mortgages.

These credit-easing programs, along with actions taken by the Treasury and other government entities, are crucial determinants of the timing and strength of the economic recovery, Bernanke said in his opening remarks. However, although low interest rates and ongoing fiscal stimulus will help, we cannot have a vigorous economic recovery unless we succeed in restoring a reasonable degree of financial stability.

The Fed chairman said 'too-big-to-fail' companies were complacent about risk, calling too-big-to-fail an extremely serious risk that officials need to act on immediately.

Bernanke also said regulators should monitor executive compensation.

These are Bernanke's first comments since Wednesday's Federal Open Market Committee interest rate meeting, at which the Fed kept rates on hold, but announced it will purchase up to $300 billion in long-term Treasuries over the next six months.

The FOMC also committed to purchasing an additional $100 billion in agency debt, and up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to as much as $1.25 trillion this year.

By Stephen Huebl, shuebl@economicnews.ca, edited by Ernest Hoffman, ehoffman@economicnews.ca