JACKSON HOLE, Wyo. — Federal Reserve Chairman Ben Bernanke yesterday called for strengthening the nuts and bolts of the financial system and said the Fed and other regulators should focus more on the stability of the overall system than on the health of individual companies.

He also said the recent drops in commodity prices and stabilization of the dollar should reduce inflation later this year and next year, though he called that outlook highly uncertain. He said the central bank will "act as necessary" to stabilize prices in the medium run.

Still, the comments signal that the Fed is unlikely anytime soon to hike the short-term interest rate it controls as an inflation-fighting measure.

Bernanke's speech implicitly offered his broadest analysis to date of the regulatory breakdowns that led to the sprawling financial debacle that is now a year old, offering suggestions on ways to reduce the frequency and intensity of future problems.

Speaking at an annual symposium sponsored by the Federal Reserve Bank of Kansas City, he stressed the need to strengthen some of basic financial infrastructure.

He said the Fed, for example, ought to be given explicit authority to oversee the way financial institutions pay each other and clear trades.

FUTURE SHOCKS

Referring to the Fed rescue of Bear Stearns in March, Bernanke said: "This experience has led me to believe that one of the best ways to protect the financial system against future shocks, including the possible failure of a major counterparty, is by strengthening the financial infrastructure," including the computers used to conduct trades and the various contractual arrangements and processes behind them.

Indeed, Bernanke said, the Bear Stearns rescue could create new risks if investors or others assume that there will be government intervention to prevent any large bank or investment firm from failing.

"If no countervailing actions are taken, what would be perceived as an implicit expansion of the safety net could exacerbate the problem of 'too big to fail,' possibly resulting in excessive risk-taking and yet greater systemic risk in the future," he said.

Specifically, Bernanke advocated establishing rules by which an agency — likely the Treasury Department — could oversee an orderly dissolution of any firm that threatens the broader financial world.

"We need to ensure that there are robust contingency plans for managing, in an orderly manner, the default of a major participant," he said.

BROADER VIEW

Bernanke said bank regulators need to devote more attention to the risks some banks present to the overall system.

"A critical question for regulators and supervisors is what their appropriate field of vision should be," Bernanke said. "Under our current system ... supervisors often focus on the financial conditions of individual institutions in isolation. An alternative approach ... would broaden the mandate of regulators" to encompass systemic risks.

That comment acknowledged some of the regulatory weaknesses that allowed the current situation to develop.

Bernanke noted that regulators issued guidance in 2006 about exotic home loans. But because that process followed a lengthy comment period, they were in many ways too late to curb some bad lending.

"The process is not always as nimble as we might like," Bernanke said. "For that reason, less-formal processes may sometimes be more effective and timely."

He warned, however, that the public and financial players might come to assume that the government will prevent any financial crisis, which could lead to more risk-taking and potentially set the stage for an even broader crisis.

"We would be wise to maintain a realistic appreciation of the difficulties of comprehensive oversight in a financial system as large, diverse and globalized as ours," Bernanke said.