WASHINGTON (AFP) - US bank lending is still shrinking despite massive government efforts, the head of the US Federal Reserve Ben Bernanke warned on Thursday. Speaking one year after the Fed imposed stress tests on banks to rebuild confidence in the system, and after massive government bailouts, Bernanke said the outlook remained patchy. By setting reasonably ambitious capital targets, we hoped... to hasten the return to a better lending environment, he said in a speech in Chicago. Clearly that objective has not yet been realized, as bank lending continues to contract and terms and conditions remain tight. Resuming lending is seen as crucial to kick-starting the US economy, allowing firms to restart hiring and to revive the moribund housing market. Bernanke said spurring lending is one of the central banks top priorities, as the US recovery continues at a painfully slow pace. Restoring the flow of credit through the banking system remains a central objective of the Federal Reserve, he said. With unemployment levels of 9.7 percent and thousands of Americans still owing more than the value of their homes, the two issues have become a major political headache for President Barack Obama as the country heads to midterm elections in Nov. Bernanke also warned that local and regional US banks were still suffering the effects of the recession and many will need more capital to survive. The number of regional and community institutions considered weak is still increasing, and their loan losses likely will remain elevated this year, he said.