Ben Bernanke, the Chairman of the US Federal Reserve, hit out today at the "abusive lending practices and outright fraud” that had accompanied an expansion of mortgage lending to borrowers with poor credit ratings in the sub-prime market.

Giving testimony to Congress, he suggested that the Federal Reserve would act to rein in such activity.

“Rising delinquencies are creating personal, economic and social distress for many homeowners and communities — problems that likely will get worse before they get better,” he said.

He added that the US economy had emerged from its anaemic spell, but overall growth for the year will be lower than expected.

Inflation remained the chief concern, he said.

Two European insurers are facing an $8 billion exposure to American sub-prime mortgage markets, it emerged today, only hours after bad debts forced the Wall Street bank Bear Stearns to tell investors that two funds it manages were virtually worthless.

Aegon and ING, both Dutch-based insurers, hold about $4 billion (£1.95 billion) each of sub-prime US mortgage assets, according to analysts at Sanford Bernstein, the stockbroker.

Bruno Paulson, a senior analyst at Bernstein, estimates that Prudential, the UK-based insurer, has a further $200 million of market exposure.

And Axa, the French insurance group, is thought to be among other leading European insurers facing the risk of losses in the wake of the collapse in confidence in the US housing market.

The crisis of confidence in the US housing market has had a marked knock-on effect on the value of mortgage-related securities traded on the wholesale markets.

Delinquency levels among mortgage borrowers with patchy credit histories have rocketed to four-year highs in America, hitting the underlying value of structured packages of mortgages put together by investment banks and previously extremely popular among investors.

European insurers tend to hold significant positions in securities whose repayments are backed by residential mortgages, matching them against their fixed-annuity liabilities, Mr Paulson said.

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