Federal Reserve Governor Sarah Bloom Raskin said regulators should prevent asset-price bubbles by boosting the amount and quality of capital required of banks.

Officials also should continue stress testing of lenders, restrain banks from “excessively” extending loans, and reduce “overreliance on unstable short-term wholesale funding,” Raskin said in a speech today in Washington.

“These reforms will build resilience to whatever shocks may come, and will reduce the potential for asset bubbles and excessive credit growth, leverage, maturity transformation, reliance on unstable short-term wholesale funding, and, thus, the potential for future financial crises,” Raskin, formerly Maryland’s top financial regulator, said in her speech to bankers and other financial industry leaders.

Central bank officials, including Vice Chairman Janet Yellen, Governor Jeremy Stein, and Kansas City Fed President Esther George, have voiced concern this year that four years of record-low interest rates are overheating markets for assets from farmland to junk bonds. Stein in February cited leveraged loans and junk bonds as areas that have been “very robust.”

On the Fed’s record monetary accommodation, Raskin said today in response to an audience question that policy changes will depend on reports about economic data.

“There’s no preordained timeframe or set of predetermined steps that has been decided” on when and how it will conclude, she said.

‘Quite Accommodative’

“The current course of monetary policy is one that is quite accommodative,” Raskin said. “The future course of it is data-dependent. It really is going to be derived from what indicators the Federal Open Market Committee sees in terms of emerging data points.”

Fed Chairman Ben S. Bernanke said today in testimony to the House Financial Services Committee the central bank’s asset purchases “are by no means on a preset course” and could be reduced more quickly or expanded as economic conditions warrant.

The Fed must continue looking for signs of market dislocations after keeping the main interest rate at a record low near zero since December 2008, Raskin said.

“It has to be absolutely scrupulous about monitoring the reaching for yield that is encouraged by the low interest rate environment,” she said in a response to an audience question.

Raskin in her prepared remarks said too much credit can fuel unwarranted risk taking in markets.

‘Lean Against’

“Regulatory policies can lean against emerging asset bubbles and the vulnerabilities that attend them by restraining financial institutions from excessively extending credit,” Raskin told the Exchequer Club. “Such policies can build resilience in the financial system, enhancing its ability to absorb and shrug off unexpected losses from any source, including sharp asset price declines.”

Regulators have sought to prevent excessive risk taking in markets since the 2008 credit freeze led to the worst U.S. recession since the 1930s. The Fed has kept its benchmark interest rate near zero since December 2008 and is buying bonds to reduce borrowing costs, spur growth and combat unemployment.

Yellen said in a Jan. 4 speech that financial markets should be regulated more tightly to reduce the risk of 2008-like credit crises. Regulators could make financial markets more resilient by setting higher capital requirements for so-called systematically important global banks, she said.

‘Significant Pattern’

Stein in a Feb. 7 speech said some markets are showing signs of potentially excessive risk-taking and “a fairly significant pattern of reaching-for-yield” in corporate bonds. Bonds, farmland, and high-yield and leveraged loans “are at historically high levels,” George said in a Jan. 10 speech.

Average yields on speculative-grade corporate debt in the U.S. fell to a record-low 5.98 percent in May from 6.53 percent the day of George’s speech, according to Bank of America Merrill Lynch index data. Borrowing costs for bonds ranked below Baa3 by Moody’s Investors Service and BBB- at Standard & Poor’s have since climbed to 6.64 percent as of July 16, still about 3.5 percentage points below the average level in the decade before Lehman Brothers Holdings Inc. collapsed in September 2008.

Raskin, 52, has backed Federal Open Market Committee decisions this year to continue purchasing securities at the rate of $85 billion a month to boost growth and reduce unemployment.