WASHINGTON — Federal Reserve Board Chairman Ben Bernanke told a congressional committee Thursday that the central bank, limited in its ability to ease Europe's problems, continues to prepare in case U.S. banks are hit by contagion effects from overseas.

"On the banking side we have worked really hard to try to make sure that the banks, that the financial system would be resilient to shocks coming from across the Atlantic," Bernanke told House and Senate members who sit on the Joint Economic Committee. "We are taking steps trying to make sure we are as well prepared as possible in the financial system."

But Bernanke also turned the spotlight on the committee, chaired by Sen. Bob Casey, D-Pa., telling the lawmakers the best antidote to a potential negative of a crisis in Europe is for Congress to take steps to make the U.S. economy stronger.

"The main thing that Congress can do is to help strengthen our economy," he said. "The more momentum, the stronger our economy, the better able we would be to withstand the financial spillover from problems in Europe."

It was a constant theme that ran throughout Bernanke's two-hour testimony. In his responses to questions from the committee, he repeatedly urged Congress to take action to clarify the nation's fiscal situation and begin addressing troubled parts of the economy, such as unemployment and the sluggish housing market. Yet he avoided offering specific policy solutions.

"Trying to put our fiscal situation on a sustainable basis is perhaps one of the most important things that Congress can be working on," he said.

Although he outlined steps the Fed has taken to support the U.S. economy and minimize the effects of a European spillover, he pointed to the central bank's own limitations in preventing further economic woes.

"There is not a whole lot that can be done that I can think of to attenuate the problems in Europe," said Bernanke. "We obviously have to monitor it very carefully. I think the best thing we can do is try to make sure we are strong and prepared here in the United States."

The Fed has several tools at its disposal to provide support to the U.S. economy and U.S. banks should contagion spread from Europe, which has become a major worry for lawmakers.

Bernanke pointed to annual stress tests and ongoing reviews of exposure of U.S. banks to Europe. Since the crisis, the central bank has already been working steadily to ensure banks are in a position to provide liquidity to insolvent banks and have engaged in currency default swaps with the European Central Bank.

Meanwhile, banks have already built up an additional $300 billion in capital since the fallout of the financial crisis in 2009. Stress tests have also proven that most institutions would be able to withstand adverse scenarios like a 13% unemployment rate and a sharp decline of gross domestic product to minus 8%, a point Bernanke emphasized.

The Fed has also kept its broad-based authority to provide liquidity against collateral in the event of an intense financial stress.

But even with such improved financial strength by U.S. banks, Bernanke warned the escalating situation in Europe continues to pose "significant risks to the U.S. financial system and economy."

"As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate," said Bernanke.

Meanwhile, Bernanke urged Congress to take a balanced approach as it moves ahead with its decision making on fiscal policy.

"The main message I would take is — is the one that I've been trying to sell here for the last couple of hours, which is that a sensible fiscal policy is one that takes into account both the short-run needs of the economy not to lose fiscal support sharply and rapidly during a period of fragile recovery, while at the same time combining that with a medium-term plan to … address these fiscal sustainability issues," he said.

He warned that "monetary policy is not a panacea."

"It would be much better to have a broad-based policy effort addressing a whole variety of issues," said Bernanke. "I'd be much more comfortable if, in fact Congress would take some of this burden from us and address those issues."

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