The chairman of the US Federal Reserve has stepped up pressure on Congress to introduce legislation overhauling the nations financial regulatory system.

Ben Bernanke called for more immediate action from legislators who have been weighing the issues for some months but who have so far failed to act decisively.

"Regulators and supervisors can do a great deal, but comprehensive financial reform requires action by the Congress," he said.

Coming just a day after Washington launched a two-fronted attack on Wall Street with the pay czar Kenneth Feinberg’s clampdown on salaries and bonuses at bailed out banks and car makers and guidelines from the Fed itself to more tightly regulate compensation at banks, his remarks will add new impetus to attempts at prevent another financial crisis.

Mr Bernanke called for new powers for regulators to oversee financial companies whose size and complexity threatens the entire financial system.

In particular, he highlighted the need to close the regulatory failures that allowed some large financial firms to escape proper scrutiny.

"Large, complex financial firms that do not own a bank, but that nonetheless pose risks to the overall financial system, must not be permitted to avoid comprehensive and effective supervisory oversight," he said.

Consolidated supervision together with tougher capital, liquidity and risk-management requirements is needed to both protect the stability of the financial system and reduce the incentive for firms to grow so large as to be perceived “too-big-to fail”, he said.

A new way needed to be found to “restore a meaningful degree of market discipline” and to wind down companies, other than bail-out or bankruptcy for such firms.

“It is essential that there be a credible process for imposing losses on the shareholders and creditors of the firm. Any resolution costs incurred by the government should be paid through an assessment on the financial industry and not borne by the taxpayers,” Mr Bernanke said.

He lent his support to the creation of a systemic oversight council, composed of all the principal financial regulators. He also stressed the need for better consumer protection.

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