Paulson:Banks need to raise capital quickly -Nikkei

TOKYO, Feb 9 (Reuters) - U.S. financial institutions have to realise losses and raise capital quickly to stave off a credit crunch, U.S. Treasury Secretary Henry Paulson told the Nikkei business daily.

"The worst thing is if they don't raise capital, if they shrink their balance sheet, and then restrain their lending," Paulson said in an interview with the Nikkei published on Saturday.

"If there's any doubt that they will not have enough capital, they should go out and get capital where it is available," he said just before he left Washington for Tokyo to meet Group of Seven (G7) financial leaders.

Paulson also said financial institutions, including monoline bond insurers, must look to the private sector, not the government, to strengthen their capital, denying using public funds to support the banking system.

"There may be other countries where government needs to be involved, but that is not the case in the United States," he said.

Paulson also said he welcomes investments from sovereign wealth funds, saying he has had many conversations with them and they all assured him that they are driven by the desire to maximise their returns.

"I think it's important that the OECD countries come together and do everything they can to resist those in their nations who would hide behind the fact that the investment is coming from a Sovereign Wealth Fund to oppose it, when what they're really doing is resisting foreign investment," he said. (Reporting by Hideyuki Sano)