The financial crisis calls for banks to play a greater role in providing credit, but banks are currently tightening credit and curtailing lending as the economy weakens, Federal Reserve Vice Chairman Donald Kohn said Monday.

"One consequence of the distress in financial markets is that banks are being pushed to take a greater role in financial intermediation," Kohn said in remarks prepared for delivery to a housing forum organized by the Office of Thrift Supervision.

While bank lending surged in the fall, bank lending appears to have dropped back in recent weeks, Kohn said, "consistent with the significant tightening of terms and standards reported by bank loan officers in recent quarters as well as the weakening of economic activity."