Federal Reserve Chairman Ben S. Bernanke warned lawmakers Thursday that they are risking grave consequences by continuing their game of chicken over the nation’s legal limit on government borrowing.

“I think using the debt limit as a bargaining chip is quite risky,” Bernanke said at a Senate Banking Committee hearing, adding that failure to raise the limit in the coming days could cause a spike in interest rates and severe instability in the financial markets.

Republican leaders have vowed not to raise the debt ceiling unless it is done along with significant cuts in federal spending. The national debt is set to reach its limit of $14.3 trillion early next week, although Treasury Secretary Timothy F. Geithner has said he could use certain “extraordinary measures” to keep paying the nation’s bills through Aug. 2.

Administration officials and a coalition of top business executives have insisted that failing to raise the debt limit would amount to financial suicide and could set off a tidal wave of negative economic consequences.

Bernanke’s comments came during a broader hearing that touched on another topic that has deeply divided the two political parties: the far-reaching overhaul of financial regulations passed by Congress last year, known as the Dodd-Frank bill.

The massive legislation — which creates a new consumer-protection watchdog, empowers the government to wind down large failing financial companies and establishes oversight of the vast financial derivatives market, among other measures — has been under constant attack by Republicans since it became law in July.

But Bernanke and other top regulators, including Deputy Treasury Secretary Neal Wolin and Federal Deposit Insurance Corp. Chairman Sheila Bair, argued that allowing the government to shut down large, interconnected companies that are in serious trouble without bailing them out with billions of taxpayer dollars is necessary in the wake of the financial crisis.

“It was clear, painfully clear, in retrospect that the regulatory system that was existing during the crisis was insufficient,” Bernanke said.

Added Bair: “I think it would be very harmful to repeal it. There’s a lot of work going on now that is moving towards ending ‘too big to fail.’ The tools are there; the implementation capability is there. And I wouldn’t want that work to be diverted.”

While Thursday’s session was meant to update lawmakers on efforts to prevent systemic risks that could cripple the financial system, the session also touched on other controversial elements of the Dodd-Frank bill. Those include the ongoing battles over who will lead the new Consumer Financial Protection Bureau and how much merchants should pay banks for every swipe of a debit card.

Republicans have shown particular disdain for the fledgling bureau, which they argue will constrict consumers’ access to credit and burden businesses with another layer of government regulation.

Members of the House Financial Services Committee recently passed a trio of GOP-backed bills that would curtail the new regulator’s reach and replace the independent director’s position with a five-member commission. In addition, dozens of Republican senators wrote to President Obama last week vowing to block any nominee unless stronger limits are put on the bureau’s power. They called for a board structure rather than a single leader.

Obama appointed Harvard law professor Elizabeth Warren to set up the bureau last fall. While Warren remains the leading candidate for the director’s job, the Senate is unlikely to confirm her, meaning Obama could be forced to use a recess appointment.

Regulators on Thursday were diplomatic when asked by Senate lawmakers about the director’s post. But Bair suggested that the new bureau needs a Senate-confirmed director.

“I look back on my last five years and all the tough decisions I had to make, and if I’d been in an acting capacity, it would have been very inhibiting to me in making some of the tough decisions I had to do. So I hope the process can move forward.”