The 2008-2009 financial crisis that rocked worldwide markets was amplified by the lack of a sufficient regulatory framework, including checks on the largest broker-dealer firms, Federal Reserve Board Chairman Ben Bernanke said Friday.

Reflecting on the government response to the financial panic, Bernanke told listeners in New York that the global financial framework contained key vulnerabilities before the crisis, particularly with regards to the “shadow banking” sector of the market.

“As became apparent during the crisis, a key vulnerability of the system was the heavy reliance of the shadow banking sector, as well as some of the largest global banks, on various forms of short-term wholesale funding, including commercial paper, repos, securities lending transactions, and interbank loans,” Bernanke said.

The Chairman said the existence of a government safety net contributed to the crisis, which he admitted was difficult to foresee. However, a major problem hampering policymakers in preempting the crisis was the lack of a real regulatory mechanism for the shadow banking sector, which includes hedge and money market funds.

“In retrospect, it is clear that the statutory framework of financial regulation in place before the crisis contained serious gaps,” Bernanke said. “Critically, shadow banking activities were, for the most part, not subject to consistent and effective regulatory oversight. Much shadow banking lacked meaningful prudential regulation, including various special purpose vehicles, ABCP conduits, and many nonbank mortgage-origination companies.”

Where mechanisms did exist, said Bernanke, they didn’t function in practice.

“Other shadow banking activities were potentially subject to some prudential oversight,” he said, “but weaknesses in the statutory and regulatory framework meant that in practice they were inadequately regulated and supervised. For example, the Securities and Exchange Commission supervised the largest broker-dealer holding companies but only through an opt-in arrangement that lacked the force of a statutory regulatory regime. Large broker-dealer holding companies faced serious losses and funding problems during the crisis, and the instability of such firms as Bear Stearns and Lehman Brothers severely damaged the financial system.”

Bernanke said these structural failures have to be “fully addressed” to prevent future panics, a process which he said is “well under way.” He concluded that the fed and other central banks have to fulfill a more expansive role than the mere management of monetary policy.

“Going forward, for the Federal Reserve as well as other central banks,” said Bernanke, “the promotion of financial stability must be on an equal footing with the management of monetary policy as the most critical policy priorities.”