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Toronto, Ontario - November 12, 2015 -- -- Ben Bernanke, former chairman of the Federal Reserve, speaks during a "Globe Talks" event in Toronto, Thursday November 12, 2015.

Canada has some tools to deal with an overheated housing market, said Ben Bernanke, the former U.S. Federal Reserve chairman.

"There are tools requiring higher down payments," he said at a Globe Talks event in Toronto on Thursday. "Canada has made some progress."

Since the 2008 financial meltdown, Canada's federal housing agency has tightened borrowing conditions and made it harder for prospective homeowners without enough equity to buy a house.

Mr. Bernanke said the risk is not that house prices will fall and affect consumer spending and the economy, but the real threat is to the wider financial system.

"It's not going to be catastrophic unless it also brings down the financial system," said Mr. Bernanke, who is on a book tour to promote his memoir of the financial crisis.

Real estate prices in Canada have skyrocketed over the past decade, with the average price of a detached home reaching $2.2-million in Vancouver and $1.05-million in Toronto. Rock-bottom interest rates helped fuel the frenetic real estate activity.

The International Monetary Fund and others have expressed concerns that Canada's housing market is overvalued, pointing out that soaring prices and high consumer debt make it vulnerable in an economic downturn. The Organization for Economic Co-operation and Development recently warned that Toronto's housing prices were at risk of a sharp correction.

But Mr. Bernanke said well-capitalized banks could help avoid the worst outcomes. He applauded Canadian lenders for not accumulating huge piles of risky subprime mortgages during the U.S. housing boom.

"Canadian banks did not expose [themselves] in the same way," he said. "Although there was certainly plenty of stress, the banks here came through much better."

The former Fed chief characterized the U.S. housing meltdown as the trigger for the 2008-09 global financial crisis, where millions of highly indebted homeowners lost their houses and the Fed stepped in to prop up big banks and other parts of the financial network.

During his eight years as Fed chairman, Mr. Bernanke presided over some of the central bank's most controversial measures, including using taxpayer funds to bail out Wall Street and government-controlled mortgage finance entities Fannie Mae and Freddie Mac.

The Fed also embarked on a massive monetary stimulus program from 2008 through 2014. It bought more than $4-trillion worth of bonds in an attempt to drive down long-term interest rates, bolster bank lending and kickstart the U.S. economy.

Mr. Bernanke defended the Fed's actions in the years leading to the U.S. housing bubble and said lax oversight let big interconnected financial services firms such as Lehman Brothers and insurer American International Group fall through the regulatory cracks.

"The U.S. regulatory system had a lot of gaps in it," he said. "There was no one looking at the whole system."

The U.S. now has a so-called "risk council" – which includes the heads of every single regulator from the Securities and Exchange Commission to the Fed – that is supposed to monitor potential risks to the financial system.

Mr. Bernanke said he did not want to claim victory but said a lot of progress has been made. "Banks are much more tightly regulated," he said.

Mr. Bernanke stepped down as Fed chairman last year.

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