WASHINGTON (AFP) - Federal Reserve chairman Ben Bernanke called Tuesday for legislation to provide "more robust" supervision of Wall Street investment firms to help avert crises like the one that felled Bear Stearns.

Bernanke, speaking to a forum on mortgage lending, said regulatory loopholes helped precipitate the crisis in the US housing sector that spread to banks and investment firms that financed real estate speculation.

"The enormous losses and writedowns taken at financial institutions around the world since August, as well as the run on Bear Stearns, show that, in this episode, neither market discipline nor regulatory oversight succeeded in limiting leverage and risk-taking sufficiently to preserve financial stability," Bernanke said.

The Fed chief said the central bank was working with the Securities and Exchange Commission as well as a White House working group to help beef up oversight of the financial industry, including investment firms not directly under Fed supervision.

"In the longer term, legislation may be needed to provide a more robust framework for the prudential supervision of investment banks and other large securities dealers," he said.

"Strong holding company oversight is essential and thus, in my view, the Congress should consider requiring consolidated supervision of those firms, providing the regulator the authority to set standards for capital, liquidity holdings, and risk management."

He said Congress "should consider whether our current regulatory structure needs to be modernized to address the changes that have occurred in the structure of the financial system, including the enormous growth of nonbank financial institutions and the development of new financial products."

Bernanke's comments come amid a wide-ranging review of supervision of the financial system in the wake of the housing meltdown that many say was fueled by too much speculation and easy lending, including for "subprime" loans to borrowers with weak credit.

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

"It is not too soon, however, to begin to think about the steps we might take to reduce the incidence and severity of future crises."

Bernanke said the Fed, which opened up its credit to Wall Street firms outside the banking sector this year for the first time since the 1930s, was considering extending that option beyond year-end, "should the current unusual and exigent circumstances continue to prevail in dealer funding markets."

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