Bernanke Doesn't See Stagflation

"Among the largest banks, the capital ratios remain good," he said. "And I don't anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system."

He did urge the major institutions to raise more capital, in addition to the $75 billion or so they have raised so far. Those funds are not needed so much to stay solvent, Bernanke said, as to ensure that the banks can continue to make loans and thus keep the credit crunch from causing broad economic distress.

"I think he was trying to get a message of realism across," said Arun Raha, a senior economist at Swiss Re. "He was trying to explain why things are not looking good and what complicates his job, and what the downside risks are. He's just giving them a dose of reality."

That approach won praise from Democrats and some Republicans.

"The fact that he's as candid as he is and is not acting as a cheerleader . . . I appreciate that," Dodd said after the hearing. "My complaints are not with the Federal Reserve and the chairman. They're doing their job."

Bernanke described at length the unusual features of this downturn. "I guess as a Russian novelist once said, unhappy families are all unhappy in their own way, and every period of financial and economic stress has unique characteristics."

"I realize my testimony wasn't the most cheerful thing you'll hear today," Bernanke told Sen. Richard C. Shelby (R-Ala.).