Fed's newest member suggests breaking up Wall Street banks

WASHINGTON (Reuters) - The U.S. Federal Reserve's newest policymaker on Tuesday called on lawmakers to consider "bold, transformational" rules including the breaking up of the nation's largest banks to ensure taxpayers are no longer on the hook should they fail.

In his first speech as head of the Minneapolis Fed, Neel Kashkari urged a radical shakeup of Wall Street's banks, straddling the line between the Fed's policymaking remit and political advocacy.

A set of regulations introduced after the financial crisis, known as Dodd-Frank, did not go far enough, he said in prepared remarks.

"Now is the right time for Congress to consider going further than Dodd-Frank with bold, transformational solutions to solve this problem once and for all," Kashkari said, arguing that the biggest banks are still too big to fail and continue to pose a significant, ongoing risk to the U.S. economy.

He urged lawmakers to consider breaking up large banks into "smaller, less connected, less important entities" and took a swipe at existing rules for winding down failing banks should they run into difficulty amid a weak global economy.

"I am far more skeptical that these tools will be useful," Kashkari said, adding that "we won't see the next crisis coming."

He said Congress should consider compelling banks to hold so much capital that they can't fail.

The former senior Treasury official and Goldman Sachs executive made no comments on monetary policy and the economic outlook in his remarks.

At Treasury, Kashkari managed a key part of the banking and auto industry bailouts during the financial crisis.

He took the helm of the Fed's smallest regional bank last month, two weeks after the U.S. central bank raised interest rates for the first time in a decade.

Since then financial markets have plunged amid slowing global growth and several central banks are using negative interest rates to avoid deflation and stimulate economic activity.

Kashkari does not have a vote on the Fed's rate-setting committee until 2017 under its rotation system, but participates in deliberations.

(Reporting by Lindsay Dunsmuir and Jason Lange; Editing by Andrea Ricci)