US bank Bear Stearns came within 'hours' of bankruptcy before the central bank came to its rescue, according to the chairman of the Federal Reserve.
Ben Bernanke expressed to the Joint Economic Committee of the US Congress that the US economy could have faced a 'chaotic' time if the central bank had not intervened.
During March, the Fed agreed to back $29 billion of the bank's assets so that JP Morgan Chase could complete its purchase of the bank.
The Joint Economic Committee was meeting to assess whether tax payers money had been wasted in the rescue action.
Mr Bernanke stressed the severity of Bear Stearns position at the time as having "to file for bankruptcy the next day unless alternative sources of funding became available".
"Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain," he explained.
In conjunction with this hearing, lawmakers are currently attempting to modernise the US banking regulatory systems, some of which predate the Great Depression.
