The Federal Reserve's point person on financial regulation wants an international proposal for capital surcharges for large "systemically important" banks to be completed over the next year.
In a wide-ranging speech on global financial supervision, including the use of monetary policy as a stabilizing influence, Fed Governor Daniel Tarullo on Friday also urged an international designation of non-bank systemically important organizations be completed over the next six months.
Tarullo - who is spearheading a unilateral U.S. clampdown on foreign banks that has drawn criticism - said he backed 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."
The largest countries of the world are working to make the banking industry safer after the 2007-09 financial crisis, but differences in the ways the financial industry operates across regions have made this a difficult task.
Though he pointed to an array of areas still in need of reforms, Tarullo held up so-called systemically important financial institutions, of SIFIs, as a priority.
The international Basel Committee aims to clarify what firms would qualify as SIFIs and decide what surcharge they would face. Tarullo said this work was "nearing completion" despite the lack of precedent to help regulators.
Meanwhile, it remains unclear which firms, such as insurers, will be designated as non-bank SIFIs.
"It is important to take the time to evaluate carefully the actual systemic risk associated with these companies, and to understand the amount of such risk relative to other financial firms, before fixing on a list of firms and surcharges," Tarullo said.
"But this seems to me a realistic goal over the next six months."
Writing new rules for firms that operate globally, however, has at times proven difficult.
In December, the Fed launched a plan that would force foreign banks to group all their units under a holding company, subject to the same capital standards as U.S. holding companies. The biggest banks will also need to hold liquidity buffers.
This month, European Union financial services chief Michel Barnier criticized that plan for raising the possibility of "ring-fencing," and urged better cooperation among regulators.
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.
(Reporting By Jonathan Spicer; Editing by Leslie Adler and Lisa Shumaker)