Ben Bernanke, the chairman of the US Federal Reserve, gave warning yesterday that financial market conditions were “far from normal” and cautioned that even the most rigorous regulation would not prevent a repeat of the liquidity crisis endured during the past year.

Speaking via satellite to a financial markets conference yesterday, the central banker also sought to reassure Wall Street that the Fed was prepared to increase the amount lent to commercial banks to ensure that liquidity did not dry up.

Mr Bernanke urged banks and fund management groups to raise new capital to act as a cash cushion during turbulent times and improve their risk management procedures. He noted, however, that “this process is likely to take some time”.

His comments, along with appalling US house price data and grim retail sales statistics for April, depressed the New York stock market, with the

Dow Jones industrial average closing down 44.10 points at 12,832.20. Wall Street was also forced to contend with the prospect of even higher fuel costs after the price of oil hit a new high of $127 a barrel for the first time — the price surging amid fears that Iran may cut crude oil production.

Adding to the gloom, new data showed that the property recession was worsening as American house prices plunged at their fastest rate for 26 years during the first quarter of the year.

The average price of an existing single family home across the United States fell by 7.7 per cent during the first three months of the year, compared with the same period the year before, leaving the average US house valued at $196,300 (£101,000).

According to the National Association of Realtors (NAR), sales activity also collapsed. Over the same period, total existing sales fell by 22.2 per cent as buyers stayed away from the falling market for fear that prices would slide farther.

Of the 149 metropolitan areas surveyed by the association, 100 showed declines in house price in the first quarter.

Lawrence Yun, the chief economist of the NAR, said in a statement: “These are highly unusual results because there were very few jumbo loan originations [big mortgages] in the latest quarter, so sales are much slower in high-cost areas.

“Neighbourhoods with little sub-prime [mortgage] exposure are holding on very well, while prices have fallen in neighbourhoods with a wide prevalence of sub-prime loans because more foreclosed properties are being sold at discounted prices.”

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