Some small US banks are likely to fail in the months ahead, Ben Bernanke said on Thursday, warning that his country faced a more difficult situation today than in the aftermath of the dotcom bust in 2001.

“There will probably be some bank failures,” the Fed chairman told the Senate banking committee in his second day of biannual testimony to Congress.

He said the banks at risk were “small and in many cases de novo [new] banks that are heavily invested in real estate in localities where prices have fallen”.

But he said: “I do not anticipate any serious problems” at any of the big banks, which played the most important role in the US financial system.

The Standard & Poor’s financials index was down 3 per cent at noon on Thursday.

Mr Bernanke, meanwhile, dodged efforts by senators to enlist his support for proposals to reform the bankruptcy code or use taxpayers’ money to intervene directly in the mortgage market.

He said it was worth “thinking about” additional steps but could not recommend any at this point, beyond existing proposals to modernise the Federal Housing Administration and reform Fannie Mae and Freddie Mac.

The Fed chairman said there were “some similarities with the 2001 experience” – in so far as this downturn, like the previous one, was being driven by a sharp fall in asset prices.

But he said there were “important differences”. The fall in house prices was creating a “much broader set of issues” than the slump in tech stocks did.

Falling house prices affected more consumers than falling stock prices, while the house prices had also caused a “sustained disruption in the credit market”.

Moreover, the US was in a weaker position to respond to the negative growth shock today than it was in 2001.

“We do have greater inflationary pressure at this point than we had in 2001,” he said, noting that oil was about $20 a barrel in 2001 and was about $100 a barrel now.

The dollar, which was strong in 2001, was weak today. This weakness was contributing to the increase in the price of oil, Mr Bernanke said. However, the weak dollar had the benefit of stimulating exports.

The Fed chairman said the US was also “in a less advantageous situation” fiscally today than in 2001.

Mr Bernanke brushed aside concerns that the US could be facing a period of 1970s-style stagflation, saying: “I do not think we are anywhere near to the situation that prevailed in the 1970s.”

He expected inflation to moderate, providing oil and other commodity prices did not continue to increase.

But he said the US central bank would have to take “very seriously” any sign that inflation expectations were rising.

While Mr Bernanke has been criticised by some in the markets for his handling of the credit crisis, his testimony drew strong bipartisan support in the Senate, as it did the previous day in the House.