(Adds details from speech and Q&A; background, changes dateline, previous WASHINGTON)

NEW YORK, Nov 10 (Reuters) - Governments must convince markets of their ability and willingness to wind down large financial firms instead of bailing out their creditors and shareholders, a top Federal Reserve official said on Tuesday.

Fed Governor Daniel Tarullo said there was no guarantee that future resolutions of systemically important firms would be smooth or predictable.

"In light of what has happened over the past 18 months, it is imperative that governments convince markets that they can and will put large financial firms into a resolution process rather than bail out creditors and shareholders," Tarullo said in a speech at the Institute of International Bankers Conference on Cross-Border Insolvency Issues.

Authorities in the United States are proposing a so-called resolution authority, which would enable the government to wind down a systemically important firm in an orderly way, as part of sweeping legislation to overhaul financial regulation.

The proposals come in the wake of the worst global financial crisis since the 1930s, which prompted governments, including in the United States to bail out financial firms that were considered too big to fail.

In addition, firm-specific proposals known as living wills have been put forward to address the problem of institutions that are considered too big to fail.

Tarullo said the importance of the living will was that it was an instrument that could better tie the supervisory and resolution processes together.

Speaking in a question-and-answer session after his speech, he said a living will can "allow for some adjustment before the fact rather than in the midst of the crisis."

"The information requirements of living wills and the need to measure and manage risks at the legal entity level can help create the right incentives for firms to simplify their structures without necessarily requiring a supervisor to delve into the details of a banking group's structure," he said. (Reporting by John Parry in New York and Lucia Mutikani in Washington; Editing by Chizu Nomiyama)