Signatures too big to fail are problem "pernicious": Bernanke

Orlando, Florida (Reuters) - Regulators should be severe with the most powerful financial firms to limit major risks, but the big companies are still necessary to keep operating at the global economy, said on Saturday the president of the Federal Reserve, Ben Bernanke.

Bernanke said in a conference of the Independent Community Bankers of America that the problem that some companies are perceived as "too big to fail" is one of the obstacles "more adverse" to competition in financial markets.

"As the crisis has shown, one of the greatest threats to the diversity and efficiency of our financial system is the pernicious problem of financial institutions that are considered 'too big to fail'" he said.

"It is inconceivable that the fate of the world economy should be so closely linked to the fate of a relatively small number of giant financial firms," he added.

The proposed reforms would limit the scope and activities of financial institutions "deserve careful consideration," said the Fed chief

Supervisors should have powers to limit the participation of large firms in "inappropriate risk activities," he said.

Bernanke, however, clarified that the big financial companies still play a vital role and said a "technologically sophisticated, globalized economy" needs "big financial firms, complex and active in international affairs.

The challenge is to ensure that its size does not insulate from market discipline, he said.

Bernanke's comments come less than a week after the head of the Senate Banking Committee, Christopher Dodd, announced a regulatory reform bill that would put the Fed as a supervisor of banks and major financial firms with assets greater than 50,000 million dollars.

The Fed already has authority over big banks, but it lacks power over non-bank financial firms such as insurer AIG, which was one of the companies at the heart of the crisis caused on Wall Street.

The draft Dodd also would give the Fed the authority to break up large firms that might threaten the stability of the financial system if they have problems.

Bernanke outlined a three-pronged approach, favored by the Federal Reserve on how to address the problem of large, interconnected firms so that the markets believe would benefit from government intervention if wonky.

(Reporting by Kristina Cooke, editing by Matthew Jones Spanish)