The real estate bust was not the primary reason for the plunge in US economic fortunes in the financial crisis, Ben Bernanke, who steered the Federal Reserve during the debacle, has said.

Mr Bernanke, a fellow at the Brookings Institution and adviser to two investment groups, said panic in the funding and securitisation markets was the main reason for the severity of the crisis. Its early stages would have been “significantly less severe” without the collapse in confidence on Wall Street.

The analysis, presented at Brookings yesterday, adds intensity to the debate over whether the US central bank and other authorities put too much public money into rescuing Wall Street from 2007-09, and whether they were negligent in failing to tackle the hazards building in the property market.