Oct. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies.

Officials should review how supervision and interest rates can minimize the ``dangerous phenomenon'' of bubbles in housing, stocks and other assets that risk bringing the financial system and economy down with them when they burst, Bernanke said.

``There is no doubt that as we emerge from the current crisis that we are all going to look very hard at that issue and what can be done about it,'' he told the Economic Club of New York in his broadest remarks on future regulatory changes since the credit crisis deepened last month.

The comments signal that the 54-year-old chairman, while trying to quell the worst market turmoil since the 1930s, is crafting an agenda for greater oversight. Policy makers will toughen their response to ``excessive leverage,'' give more weight to financial stability in economic analysis and examine ways to strengthen the system of trading and settlement behind complex derivative securities, he said.

The U.S. faces ``a very serious too-big-to-fail problem,'' in which the insolvency of a large financial company could threaten a market collapse, Bernanke said in reply to an audience question. ``There are too many firms that are in some sense systemically critical.''

No Imminent Rebound

Government efforts to calm financial markets and stem the credit crisis probably won't result in an immediate economic rebound, Bernanke said.

``Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,'' Bernanke said in his speech. ``Economic activity will fall short of potential for a time.''

The U.S. is showing increasing signs of falling into a recession, according to economists surveyed by Bloomberg News. Retail sales dropped in their longest slump in at least 16 years and prices paid to U.S. producers fell in September.

The economy shrank at a 0.2 percent annual pace in the third quarter, and will contract 0.8 percent in the last three months of the year, according to the median estimate of economists surveyed earlier this month. U.S. gross domestic product will expand by just 1.2 percent next year as the collapse of the housing market, rising unemployment and constrained credit cause consumers and businesses to curtail spending.

Housing Epicenter

``The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdowns in consumer spending, business investment and the labor market,'' Bernanke said. ``Credit markets will take some time to unfreeze.''

The Fed said today in a regional review of the economy that growth deteriorated throughout the U.S. last month and pessimism about the outlook spread.

``Economic activity weakened in September across all 12 Federal Reserve districts,'' the Fed said in its Beige Book report. ``Consumer spending decreased in most districts, with declines reported in retailing, auto sales and tourism.''

Bernanke has pushed the limits of the Fed's authority to create several unprecedented lending channels. Still, damage from the credit crisis has spread from mortgage lenders, commercial banks, securities firms and the biggest U.S. insurer to companies involved in manufacturing and services.

Lehman Bankruptcy

The bankruptcy of Lehman Brothers Holdings Inc. on Sept. 15 increased fears among investors that their short-term loans might not be repaid. Short-term money market rates, such as the market for short-term dollar loans known as Libor, or the London interbank offered rate, soared. The Libor rate stood at 4.55 percent today.

The Lehman failure was so disruptive that the central bank decided to protect creditors against a similar collapse of American International Group Inc. The firm accepted an emergency $85 billion loan from the Fed on Sept. 16.

``Our strategy will continue to evolve and be refined as we adapt to new developments and the inevitable setbacks,'' Bernanke said. ``We will not stand down until we have achieved our goals of repairing and reforming our financial system.''

Emergency Programs

U.S. central bankers have used some five new programs, many erected under emergency powers, to pump billions in temporary dollar loans into a financial system where many banks have curtailed overnight lending out of concern they won't be paid back.

``Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning,'' Bernanke said.

The Federal Open Market Committee voted to cut the benchmark lending rate a half point to 1.5 percent on Oct. 8 in a move coordinated with five other central banks.

Federal funds futures traders are betting on a 70 percent probability of a quarter-point cut when policy makers meet to consider changes to their benchmark lending rate on Oct. 28-29. The FOMC has cut the rate 3.75 percentage points over 13 months.

Non-farm payrolls have declined for nine consecutive months, pushing the unemployment rate to 6.1 percent in September. Sales at U.S. retailers dropped 1.2 percent in September, the most in three years.

Bank Rescue

U.S. regulators this week announced a sweeping plan to jump- start lending. The Treasury committed $250 billion in taxpayer funds to private banks, the Federal Deposit Insurance Corp. extended its insurance to include bank creditors and the New York Fed provided details on a backstop for the $1.5 trillion commercial paper market.

In the first part of his speech, Bernanke explains why rapid and aggressive government intervention is necessary to stem financial panics. In previous crises, government engagement came too late and many lenders were too badly damaged.

``Americans can be confident that every resource is being brought to bear to address the current crisis,'' Bernanke said. ``We now have the tools we need to respond.''

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net.

Last Updated: October 15, 2008 16:18 EDT