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Bernanke calls Basel II 'critical'

US Federal Reserve Chairman Ben Bernanke has thrown his weight behind the new Basel II accord, stating that risk management was "critical" to the well-being of financial systems and the institutions that operate in them.

Speaking to business students in Washington, Mr Bernanke said that both robust risk management and strong capital positions were important in ensuring that individual banking organizations "operate in a safe and sound manner that enhances the stability of the financial system".

He added: "Strong capital helps banks absorb unexpected shocks and reduces the moral hazard associated with the federal safety net.''

However, Mr Bernanke confessed that more work was still to be done before the accord can be implemented in the US.

"Although the Basel II framework provides the basis for modernizing the supervision of large, internationally active banks, I emphasize that it remains in many ways a work in progress," he said.

The Basel accord, which aims to protect the world's large financial institutions against possible market collapses, is due to be implemented globally over the coming years.