NEW YORK (Reuters) - The United States needs a safer way to shut down large nonbank financial firms without destabilizing the entire financial system, Federal Reserve Chairman Ben Bernanke said on Friday.

KEY POINTS: * “We have such a regime for insured depository institutions, but it is clear we need something similar for systemically important nonbank financial entities,” he said in prepared remarks to a community bankers convention in Phoenix. * “Improved resolution procedures for these firms would help reduce the too-big-to-fail problem by giving the government the option of safely winding down a systemically important firm rather than keeping it operating,” he said.

COMMENTS:

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

“Bernanke is making a very mild pitch for a too-big-to-fail regulator which he would like to be the Federal Reserve. But more importantly, the Federal Reserve and other policymakers are begging Congress to set up a new framework so that we can more effectively wind down institutions like AIG without having to resort to bankruptcy court.

“Bernanke is expressing some policy outrage about the AIG situation, but unfortunately, though he can’t say this publicly, the potential clawback of AIG bonuses would apply to any large organizations that got involved with the government and what that really means is an end to the TARP and the TALF program. No financial institution is going to be willing to do business with the U.S. government if the rules change in the middle of the game.

DAN COOK, SENIOR MARKET ANALYST, IG MARKETS, CHICAGO:

“Basically he had some comments out but did not say anything new. He said, we can’t expect any type of economic recovery until we stabilize our financial sector and that is nothing too earth shattering. I did not expect a lot from him, particularly after Wednesday, probably just reaffirming what he said then and the reasoning behind it.”

LEE OLVER, FIXED INCOME STRATEGIST, SMH CAPITAL, HOUSTON:

“Clearly the approach we have dealt with financial companies individually hasn’t worked very well.”

“These toxic assets are valued so low. You can’t let a bank to make up value and ignore these assets.”

MARKET REACTION: STOCKS: U.S. equity indexes stay mostly lower. BONDS: U.S. Treasury debt prices hold at little changed. DOLLAR: U.S. dollar extends gains versus yen.