The Federal Reserve’s top two officials urged a new effort to address the toxic assets held by financial companies, warning that they threaten to prevent banks from resuming lending to households and companies, Bloomberg reported.

Chairman Ben Bernanke and Vice Chairman Donald Kohn said in separate remarks yesterday that the illiquid investments raise questions about the “underlying value” of banks and may hinder “private investment and new lending.” They called for the government to remove or insure the assets.

“Banks are insolvent now,” said Paul Miller, a bank analyst at Friedman Billings Ramsey & Co. in Arlington, Va., who estimates that financial institutions need an additional $1 trillion to $1.2 trillion in new help. “Until you address this shortfall, banks will continue to be credit hoarders and destroyers as they shrink their balance sheets.”

The remarks by Bernanke and Kohn came as aides to President-elect Barack Obama and legislators deliberated how to use the next half of the $700 billion financial rescue program approved in October. Democratic House members want the Troubled Asset Relief Program deployed to help troubled homeowners, community banks and municipal-bond issuers rather than for large banks.