FILE PHOTO - The Federal Reserve Bank of Boston's President and CEO Eric S. Rosengren speaks during the "Hyman P. Minsky Conference on the State of the U.S. and World Economies", in New York, April 17, 2013. REUTERS/Keith Bedford

(Reuters) - The United States and Japan may need to shore up bank oversight to prepare for economic downturns, the head of the Federal Reserve Bank of Boston warned on Friday.

Eric Rosengren, president of the Boston Fed, said in a speech that policymakers in the two major economies should consider whether regulators need more tools, including requiring banks to hold more capital now, to counteract economic risks.

“Japan, like the United States, might benefit from considering an expanded set of macroprudential tools to enhance the financial system’s resilience,” Rosengren said in remarks prepared for delivery at a conference in Eltville, Germany.

Rosengren, who is voting member of the Fed this year on U.S. interest rates, did not discuss his monetary policy outlook in the speech. The Fed on Wednesday signaled that rate cuts could begin as early as July in response to growing economic risks, rising U.S. trade tensions and tepid inflation. The Fed has cited high levels of U.S. corporate debt among major risks to the economy today.

Rosengren’s speech focused largely on lessons from the late-1990s financial crisis in East Asia and what he sees as weaknesses in Japan’s financial system today. The speech also pointed to the role that central banks’ powers beyond setting rates, including overseeing banks, may play in the next downturn. Policymakers could have lessened the impact of prior financial crises by “stress testing” banks and requiring them to hold extra cash, Rosengren said.

“Despite the passage of time and adoption of better policies, one could argue that the Japanese banking system is now, once again, being threatened by adverse economic conditions,” said Rosengren, who was at the Boston Fed when the 2008 global financial crisis shook the economy.

“A shrinking population, aging demographics, and very low interest rates provide very little room for Japanese banks to operate profitably. This of course provides an incentive to reach for yield, potentially implying additional risk-taking.”

While Rosengren endorsed requiring banks to keep extra capital cushions during good times, the Fed itself has shied away from requiring banks to do so, keeping its “Countercyclical Capital Buffer” requirement for banks at 0%. Rosengren does not have a vote on those capital requirements.

The Fed is due to report later on Friday some results from its own annual “stress tests” of banks’ ability to weather a major downturn.