US Federal Reserve Chairman Ben Bernanke said Friday that financial innovation can make financial system more efficient but must be regulated properly.

April 14, 2009, Atlanta, Georgia, USA: Ben Bernanke, Chairman of the Federal Reserve, speaks to students at Morehouse college [CFP]

"Innovation, at its best, has been and will continue to be a tool for making our financial system more efficient and more inclusive," said Bernanke in a speech to a Fed conference in Washington D.C..

"But as we have seen all too clearly during the past two years, innovation that is inappropriately implemented can be positively harmful," he said.

"It would be unwise to try to stop financial innovation, but we must be more alert to its risks and the need to manage those risks properly," the Fed chief noted.

New financial products, such as subprime mortgage loans, credit default swaps, structured investment vehicles, and other more- recently developed financial products have become symbols of the present financial crisis.

The challenge for the government, Bernanke said, is to come up with regulations that protect consumers without stifling innovation.

"The first line of defense undoubtedly is a well-informed consumer," he said. "Consumers who know what questions to ask are considerably better able to find the financial products and services that are right for them."

He also stressed that regulators need to watch closely to ensure that complex financial products and services are explained in ways that consumers can understand.

Despite the severe financial crisis, Bernanke said he did not believe anyone would want to return to the highly regulated financial industry of the 1970s because today's "financial innovation has improved access to credit, reduced costs, and increased choice."

"We should not attempt to impose restrictions on credit providers that are so onerous that they prevent the development of new products and services in the future," he said.

"The challenge faced by regulators is to strike the right balance: to strive for the highest standards of consumer protection without eliminating the beneficial effects of responsible innovation on consumer choice and access to credit," Bernanke concluded.

(Xinhua News Agency April 18, 2009)