<div><p>NEW YORK (Reuters) - Federal Reserve Governor Kevin Warsh said on Wednesday that regulatory improvements alone would not prevent future financial crises and the government must be willing to let firms fail.</p><p>"Regulation is too important to be left to regulators alone. We need a system in which insolvent firms fail," Warsh told the New York Association of Business Economics.</p><p>In response to an audience question, Warsh said it was "essential" that the United States coordinate regulatory reform with other members of the Group of 20 rich and emerging countries.</p><p>Given the global nature of financial markets, the overall "policy prescription has to be global," even as countries make different choices about specific reforms, he said.</p><p>Warsh's comments come as Congress mulls an overhaul of financial regulations after the worst banking crisis in decades.</p><p>The Fed itself has been severely criticized for what lawmakers and many observers see as the failure to check risky lending practices and to rein in a house price bubble that led to the collapse.</p><p>Lawmakers are considering stripping the Fed of the authority to oversee banks and responsibility for protecting consumers, leaving monetary policy as its sole function.</p><p>But Warsh said the U.S. central bank should continue to play a critical function in the supervision of financial firms and that the blame for the crisis cannot be laid at the feet of regulators alone.</p><p>He said the mortgage finance system, particularly the roles of government-sponsored mortgage finance agencies Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, should be examined. The federal government took Fannie and Freddie into conservatorship at the height of the crisis.</p><img src="http://admatch-syndication.mochila.com/images/ad.gif?aid=68396326&bid=informcom" /></div><div id="copyright"><div>

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