U.S. Federal Reserve Chairman Ben Bernanke said Tuesday the world's most powerful central bank may extend securities dealers' access to direct loans from the Fed into 2009 as long as emergency conditions "continue to prevail."

Bernanke, speaking Tuesday in Arlington, Virginia, at the FDIC Forum on Mortgage Lending for Low/Moderate Income Households, said "the Federal Reserve is strongly committed" to financial stability and is "considering several options, including extending the duration of our facilities for primary dealers beyond year-end."

Further, Bernanke also said the Fed would "take a leading role" in any liquidation process for a failing investment bank.

The Fed, and other U.S. Government institutions, as well as other major central banks, are in the midst of dealing with the aftereffects of the end of the housing boom in the U.S., which led to a surge in mortgage foreclosures and related asset-back defaults.

In addition to lowering key, short-term interest rates by 325 basis points to 2%, the Fed has also established special credit facilities, including the Term Auction Facility and the Term Securities Lending Facility, to maintain dealer and investment bank liquidity, and to ensure the orderly function of markets.

Fed / Economic Analysis: A good news, bad news speech by Chairman Bernanke. The good news is Bernanke has sent a strong signal that an investment bank implosion would prompt a liquidation process coordinated by the Fed, if not a direct Fed intervention. That's consistent with the "too big to fail thesis." The bad news is there may be more housing-related pain ahead, with the proof being Q2 earnings reports of investment banks and others with mortgage and related assets exposure. Stay tuned...