Federal Reserve Chairman Ben Bernanke said on Monday banks need to have more capital at hand in order to ensure the financial system is stable.
Bernanke said regulators were taking steps to force financial institutions to hold higher capital buffers, even if they allow for a long period of implementation to prevent any market disruptions.
"We need to have higher capital, and that's what Basel III does," he said in response to questions at an Atlanta Fed conference, referring to the latest international effort to tighten bank oversight. "That's essential for a stable financial system."
Bernanke made the comments the same day that an international bank lobby group, the Institute of International Finance, urged policymakers to pause in regulating the industry.
Toughened capital standards, new liquidity requirements and rules that limit activities all restrict banks' ability to provide businesses and households with the credit needed to lift economic growth, the IIF said in a letter to central bankers and finance ministers.
Whether big banks have sufficient levels of capital to protect against possible losses has been an ongoing source of contention. A call by the head of the International Monetary Fund, Christine Lagarde, last year for European banks to raise up to 200 billion euros in new capital was quickly rejected by European politicians.
In his prepared remarks on Monday, Bernanke said the US economy has yet to fully recover from the effects of the financial crisis, and regulators must continue to find new ways to strengthen the banking system.
"The heavy human and economic costs of the crisis underscore the importance of taking all necessary steps to avoid a repeat of the events of the past few years," Bernanke said.
In a speech that did not touch directly on the outlook for economic growth or monetary policy, Bernanke focused on the lingering blind spots for financial authorities trying to prevent a repeat of the 2008-2009 meltdown.
He said financial stability matters had historically played second fiddle to monetary policy issues in the list of central bank priorities, but the crisis changed that.
"Financial stability policy has taken on greater prominence and is now generally considered to stand on an equal footing with monetary policy as a critical responsibility of central banks," he said.
Bernanke said recent bank stress tests will become a regular feature of the supervisory landscape, and for that reason the latest round of tests is being reviewed to identify possible areas of improvement in "execution and communication."
He reiterated a worry that he and other top policymakers have expressed about the continued vulnerability of money market funds.
"Additional steps to increase the resiliency of money market funds are important for the overall stability of our financial system and warrant serious consideration," Bernanke said.
"The risk of runs ... remains a concern, particularly since some of the tools that policymakers employed to stem the runs during the crisis are no longer available," he said.