Bernanke: Financial turmoil in markets easing

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"The problem of moral hazard can perhaps be most effectively addressed by prudential supervision and regulation that ensures that financial institutions manage their liquidity risks effectively in advance of the crisis," Bernanke said.

The Fed is reviewing its policies on this front to see if improvements can be made, he said.

"Of course, even the most carefully crafted regulations cannot ensure that liquidity crises will not happen again," Bernanke said. But if moral hazard is mitigated and if financial institutions and investors tighten up risk-management practices, "the frequency and the severity of future crises should be significantly reduced," he said.

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