Treasury says regulation key to averting crises

WASHINGTON (Reuters) - The United States should focus on reforming financial regulation in order to be armed against future crises, rather than making unrealistic promises to never bail out another financial firm, a top U.S. Treasury official said on Thursday.

"Such a promise does not bind future governments and ultimately is not credible," Assistant Treasury Secretary Michael Barr said.

Despite signs the United States has moved back from the financial brink and is headed toward economic recovery, "we cannot ignore the urgent need for action," he told the National Economists Club.

"Our regulatory system is outdated and ineffective and the weakness that contributed to the financial crisis persist. The progress of recovery must not distract us from the project of reform," Barr said.

"Some argue that we could better restore market discipline and reduce moral hazard by simply committing the government will never again bailout a financial firm.

"We disagree," Barr said.

(Reporting by Doug Palmer; Editing by Leslie Adler)