WASHINGTON — Federal Reserve Chairman Ben Bernanke prodded Congress this morning to enact legislation overhauling the nation's financial regulatory system to prevent a repeat of the banking and credit debacles that had thrust the country into crisis.

"With the financial turmoil abating, now is the time for policy makers to take action to reduce the probability and severity of any future crises," Bernanke said in remarks to a Fed conference in Chatham, Mass.

For its part, the Fed has been taking steps to strengthen oversight of banks, sharpen consumer protections and on Thursday unveiled a sweeping proposal to police banks' pay policies to make sure they don't encourage top executives and other employees to take reckless gambles.

But Congress needs to step in and close regulatory gaps and make other changes that only lawmakers have the power to do, Bernanke said.

At the top of the Bernanke's list: Congress must set up a mechanism — along the lines of what the Federal Deposit Insurance Corp. does with troubled banks — to safely wind down big financial firms whose failure could endanger the entire financial system.

And, the costs for such a mechanism should be paid through an assessment on the financial industry, not by taxpayers, the Fed chief said.

Moreover, Congress needs to make better systems for regulators to monitor risks lurking in the financial system, he said.