UPDATE 1-Fed's Geithner: Limited ability to tackle bubbles

(Adds details, changes dateline)

SEA ISLAND, Ga. May 15 (Reuters) - Monetary policy has only limited capacity to deal preemptively with financial bubbles, New York Federal Reserve Bank President Timothy Geithner said on Tuesday.

"It is now the consensus of most practicing central bankers that monetary policy can't do much preemptively to correct an existing substantial asset price misalignment," he said at a conference hosted by the Atlanta Federal Reserve Bank.

Monetary policy could only reduce that risk by adopting policy to ensure stable growth and low inflation, he said.

Geithner did not address the immediate outlook for monetary policy or the U.S. economy in his prepared remarks titled, "Liquidity Risk and the Global Economy."

The Atlanta Fed conference that Geithner is attending is focusing on credit derivatives.

In his speech, Geithner outlined potential risks of a financial shock stemming from a higher concentration of exposure by big banks, higher leverage and slackness in risk management due to a long period of low volatility.

Market participants and regulators could offset such risk by improving transparency and ensuring shock absorbers are strong relative to a range of economic and financial outcomes, he said.

But he said that regulators did not have the capacity to give a real-time picture of potential risks.

The Fed could reduce risks through supervision that is designed to ensure adequate capital and liquidity and better risk management tools, he said.