Fed's Tarullo says need more work on too-big-to-fail banks

WASHINGTON Tue Feb 25, 2014 11:36am EST

WASHINGTON Feb 25 (Reuters) - Regulators need to do more work to make sure the biggest U.S.-based banks are safe and protect taxpayers from costly bail-outs, Federal Reserve Governor Dan Tarullo said on Tuesday.

"I don't think that we're at, or even really close to, the point at which we can say, 'Okay, now we can be pretty comfortable that along the spectrum of concerns we've come far enough that we're hitting about the right trade-off'," Tarullo said in answer to a question as to whether regulators had solved the 'too-big-to-fail' issue.

Regulators also need to address the habit of large Wall Street banks to fund themselves in short-term interbank markets, a key cause of the 2007-09 crisis, Tarullo said, after addressing the National Association for Business Economics.

"I will say that both with respect to the largest financial institutions and with respect to the financial system more generally, that short-term wholesale funding system is really critical," Tarullo said.

The Fed is working on a rule to force banks which are heavily reliant on these markets to hold more capital, and a proposal is expected soon.