UPDATE 1-Big banks pose policy worries-Fed's Rosengren

(Recasts, adds details)

LONDON, Nov 10 (Reuters) - Requiring large global banks to be capitalized separately at home and abroad may curb the risk of a troubled institution exporting a credit crunch to another country, a senior U.S. Federal Reserve official said on Tuesday.

"The largest institutions have over time become larger relative to the size of the economy," Boston Federal Reserve Bank President Eric Rosengren said at a seminar in London.

"Banks that are global, not just large, can create additional complications. They are more difficult to resolve and can 'export' capital adequacy problems ... to countries that host their operations," he said.

Officials around the globe are debating financial regulatory reforms in the wake of a crisis that destabilized economies worldwide. They are looking for ways to minimize the risks that troubled banks can pose to the financial system.

A consequence of worries about how bank problems can upset domestic economies may be that regulators encourage globally active banks to expand domestically but shrink internationally, Rosengren said.

Many countries may decide to insulate their banking systems by requiring domestic operations of global banks to be separately capitalized, he said.

Whether policymakers decide if such a step makes sense would partly depend on whether global procedures for winding down trouble firms can be improved, Rosengren added.

Rosengren said he is skeptical of proposals to narrow bank activities. Instead, to reduce systemic risks, he favors requiring greater capital cushions and mandating institutions to set aside more reserves during boom times.

Measures should be put in place that would smooth access to capital for important firms during downturns, Rosengren said. Mandating conversion of debt and cutting dividends would help banks retain capital during downturns, he added.

Rosengren said improved global coordination was essential to ensure that "living wills," which detail how any given troubled institution should be shut down, work effectively.

"To truly be effective, a living will for a global bank would not only require a plan developed and kept up to date by management, but also an agreement among regulators in different countries that such a plan would be feasible," he said.

(Reporting by Mark Felsenthal in Washington and Christina Fincher and Nigel Davies in London; editing by Chizu Nomiyama and Jeffrey Benkoe)