More needs to be done. Full resolution of the crisis will require a further strengthening of the European banking system,” he told Congress, calling for a “significant expansion of financial backstops, or ‘firewalls’, to guard against contagion in sovereign debt markets.” Strains in global financial markets “continue to pose significant downside risks”, he said but stopped short of criticising EU bank stress tests for banks. However, his comments reflect strong doubts in Washington over Europe’s strategy. The US stress tests are widely viewed as more rigorous, modelling the shock effects of a 5pc fall in GDP, a 52pc drop in equities, and a further fall of 21pc in house prices. By contrast, the EU tests have already been overtaken by events, with both economic contraction and unemployment in Spain certain to exceed the worst case scenario for 2012. Mr Bernanke called on Europe to “increase economic growth and competitiveness and to reduce external imbalances in the troubled countries”. Washington’s view is that Europe’s crisis stems from the trade gaps within EMU and the North-South mismatch in competitiveness, rather than from debt itself. US banks have little exposure to the Club Med bloc, but face “more material” risks in the eurozone core. European holdings amount to 35pc of US money fund assets of prime US money market funds, and these funds remain “structurally vulnerable”, he said.