INSTANT VIEW - Fed's Bernanke says govt actions key to recovery

NEW YORK (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke said on Tuesday the global economy is being hit hard by a financial crisis and how governments respond will determine the timing and strength of recovery.

KEY POINTS: * "For almost a year and a half the global financial system has been under extraordinary stress -- stress that has now decisively spilt over to the global economy more broadly," he said in remarks prepared for delivery at the London School of Economics. * "The damage, in terms of lost output, lost jobs, and lost wealth, is already substantial," he said. * In his first policy speech since early December, Bernanke said the Fed still has "powerful tools" that could be expanded to spur a rebound even though it has dropped benchmark interest rates to near zero.

COMMENTS:

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO-MITSUBISHI UFJ:

"We are very much interested in quantitative easing, in terms of what additional steps can policy makers take now that the fed funds rate is zeroed out. The economy is still losing momentum here, and we want to know what policy makers can do to address that. The additional thing was they could set up so called bad banks and capitalise them to try and get these toxic assets off the books of financial institutions."

LENA KOMILEVA, GROUP G7 MARKET ECONOMIST, TULLET PREBON, LONDON:

"He's noting that problems with bank assets remain and this is driving illiquidity in the system in spite of the extensive measures undertaken by the government and the Fed including the Fed's issuing more dollars, expanding their balance sheet. So he's basically suggesting that taking care of bank equity and liability is not enough to restore normal market activity. The Fed must expand its focus to insure asset quality by creating a liquidity facility. This is a very key turning point in the Fed's sentiment towards this crisis because it resurrects the spirit behind (the original TARP.)"

ROBERT MACINTOSH, CHIEF ECONOMIST, EATON VANCE MANAGEMENT CORP, BOSTON:

"I don't think there's anything here that is surprise, he's saying there's a need for monetary and fiscal policy actions and they are already doing that... Maybe one piece of news is the setting up one of these bad bank programs which is what ultimately solved the S&L crisis a while back... but he doesn't really spell out how likely that is to happen. I haven't heard anybody talk about that for a while. I think all these different programs are starting to have to some traction, we are starting to see some improvement. But here's another thing that they could do. I think it should be (effective), somehow you need to find way to value these assets. It could help get the lending machine running more efficiently."