Fed's Geithner seeks global banking framework

NEW YORK (Reuters) - Banks crucial to the global financial system should operate under a unified regulatory framework with appropriate requirements for capital and liquidity, the president of the New York Federal Reserve wrote in the Financial Times.

"We are examining what framework of facilities will be appropriate in the future, with what conditions for access and what oversight requirements to mitigate moral-hazard risk," the president, Timothy Geithner, wrote in the article on Sunday.

"Some of these could become a permanent part of our instruments. Some might be best reserved for the type of acute market illiquidity experienced in this crisis."

In the article titled "We can reduce risk in the financial system", Geithner laid down a series of areas that needed attention.

The "shock absorbers held in normal times against bad macroeconomic and financial outcomes" needed to be increased, he wrote.

"This will require more exacting expectations on capital, liquidity and risk management for the largest institutions that play a central role in intermediation and market functioning," Geithner wrote.

Steps were also needed to allow the financial infrastructure to deal with a default by a big institution, and the framework could not be indifferent to risk outside regulated institutions, he said.

At the same time, he said the U.S. regulatory framework needed to be simplified.

"Our system has evolved into a confusing mix of diffused accountability, regulatory competition and a complex web of rules that create perverse incentives and leave huge opportunities for arbitrage and evasion," he wrote.