It is there some signs of desperation in Bernake´s speech?

Ben Bernanke said the central bank is trying to counter “widening credit spreads” that are blunting efforts to pump cash into the economy after the Fed cut the main interest rate almost to zero.

This week’s Fed decision to buy $1.15 trillion of Treasuries and housing debt is “intended to improve conditions in private credit markets,” Bernanke said today in a speech in Phoenix, echoing a Fed statement this week. Officials are “encouraged” by market responses to Fed programs, he said.

Policy makers said on March 18 the central bank will try to end the worst financial crisis in seven decades by buying as much as $300 billion of long-term Treasuries and more than doubling mortgage-debt purchases to $1.45 trillion. The moves are intended to pare home loan and other interest rates.

Bernanke said regulators need to determine whether current capital rules and accounting standards magnify swings in financial markets. They also should ensure executive compensation practices don’t prompt undue risk-taking, he said.

Speaking to a group of executives at small U.S. banks, he reiterated that a $1 trillion Fed program to unfreeze markets for securities backed by loans may expand to include mortgage- backed debt.

Bernanke acknowledged “frustration” among audience members over the credit crisis precipitated by large financial companies, saying that addressing the issue of “too-big-to- fail” firms is “extremely serious.”

Audience Applause

He paused during audience applause at several points in his speech, including after saying the largest banks should be subject to “especially close supervisory oversight and be held to the highest prudential standards.”

Regulators must ensure that management compensation at such firms doesn’t “create perverse incentives that can ultimately jeopardize” a firm’s health, he said.

“Widening credit spreads, more-restrictive lending standards and credit market dysfunction are working against the monetary easing and leading to tighter financial conditions,” Bernanke told the Independent Community Bankers of America’s national convention.

The comments were Bernanke’s first since the Fed decision two days ago to increase debt purchases. He said that the Fed “continuously assesses the effectiveness of its credit-related tools” and so far officials “have generally been encouraged by the market responses,” including a drop in mortgage rates.

Yields Tumbled

Yields on Fannie Mae and Freddie Mac mortgage-backed securities tumbled yesterday to their lowest levels in two months, suggesting the Fed’s plan to expand its asset purchases may soon push rates on new loans to record lows. Still, the difference between the yields and those on 10-year Treasuries widened to the highest since March 9.

Spreads on credit-card-backed debt have narrowed since hitting record highs in December, widening in recent weeks. The spread on AAA credit-card-backed securities increased to about 320 basis points more than the one-month London interbank offered rate, or Libor, from 250 basis points in mid-February, according to JPMorgan Chase & Co. data on March 12.

“Policy makers should review existing rules and accounting standards to determine whether these rules and standards could be modified to reduce their potential to have unduly procyclical effects,” Bernanke said.

Answering questions after the speech, Bernanke said the Fed’s emergency-lending programs and asset purchases will wind down as the economy recovers. Some, such as the commercial paper funding program, are already shrinking, he said.

“We want to be sure that when the time comes we can move out,” Bernanke said.

Small banks will probably still face a “regulatory burden” after Congress passes new financial legislation. Still, “I do think you can look forward to a situation where your competitive disadvantage becomes smaller,” compared with large banks, he said.