US Federal Reserve chairman Ben Bernanke has said an economic stimulus alone will not be enough to promote a lasting recovery and that further steps to help banks may be needed.
Speaking at the London School of Economics, Bernanke said that while an expected package to boost the US economy from new President Barack Obama could provide a 'significant boost', the US government may need to inject more capital into banks.
He also said a large quantity of distressed assets on bank balance sheets made it difficult for banks to raise capital and lend.
Bernanke said the US government could consider buying troubled assets, providing guarantees or setting up a 'bad bank' to buy assets from banks in exchange for cash and shares.
The Fed chief said the way in which governments responded to the financial crisis knocking the global economy would determine the timing and strength of recovery.
Bernanke said the Fed still had 'powerful tools' that could be expanded to help a rebound even though it has cut benchmark interest rates to near zero.
