UPDATE 1-Fed's Tarullo urges international action on regulating banks

Fri Feb 22, 2013 6:58pm EST

By Jonathan Spicer

NEW YORK Feb 22 (Reuters) - The Federal Reserve's point person on financial regulation on Friday urged completion over the next year of an international proposal for capital surcharges for large, "systemically important" banks.

In a wide-ranging speech on global financial supervision, including the use of monetary policy as a stabilizing influence, Fed Governor Daniel Tarullo also suggested that an international designation of non-bank systemically important organizations be completed over the next six months.

Tarullo urged international cooperation on strengthening the oversight of banks and other large financial institutions.

But he also argued that, given the complex assortment of regulators globally, U.S. regulators should individually deal with some troubling areas, such as money market mutual funds and tri-party repurchase markets.

"At some point, it likely will be beneficial to rationalize somewhat the overlapping, sometimes competing efforts of these various international arrangements," he told the Cornell International Law Journal Symposium.

"For the near to medium term, though, it is important to have some principles for deciding upon the international agenda that should govern the efforts of these arrangements as a whole."

Turning to monetary policy, Tarullo, who rarely discusses the topic publicly, said central banks need to assess the effect their policies have on financial stability and, sometimes, "adjust their policy decisions to take account of these effects."

Using interest rates to battle financial excesses and price bubbles has been a hotly debated topic since another Fed governor, Jerome Stein, raised the idea in a speech earlier this month.

"To be clear, I do not think that we are at present confronted with a situation that would warrant these kinds of monetary policy action," Tarullo said.

But "it seems that now is a good time to discuss these issues more actively, so that if and when we do face financial stability concerns associated with asset bubbles backed by excessive leverage, we will have a well considered view of the role monetary policy might play in mitigating those concerns," he added.

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