The United States has moved away from the financial brink and is heading toward economic recovery, a senior Treasury official said on Thursday.

In prepared remarks to the Financial Services Roundtable, Treasury Deputy Secretary Neal Wolin also reiterated the Federal Reserve was the agency best equipped for the task of supervising the largest and most complex firms.

There are indications that we have moved back from the financial brink and are headed toward economic recovery. Important parts of the financial system are back to functioning on their own, Wolin said.

Wolin said these signs of recovery should not shift the focus away from reforming the nation's regulatory system, which he described as outdated and ineffective.

The Obama administration is pushing for the U.S. central bank to be in charge of overseeing large interconnected firms and systemic risk to the economy.

In our view, the Federal Reserve is the agency best equipped for the task of supervising the largest and most complex firms. The Fed already supervises all major U.S. commercial banking organizations on a firm-wide basis, said Wolin.

He said the government's proposed plan would push for tougher standards and the largest and most interconnected firms would face significantly higher capital and liquidity requirements.

Through tougher prudential requirements, we aim to give these firms a positive incentive to shrink, to reduce their leverage, their complexity and their interconnectedness, said Wolin. We aim to ensure that they have far greater capacity to absorb losses when they make mistakes.

The plan also would make clear that being among the largest, most interconnected firms did not guarantee support in times of stress, he said.

Indeed, the presumption should be the opposite: shareholders and creditors should expect to bear the costs of failure, said Wolin.

Capital and other regulatory requirements should be tailored to ensure stability of the financial market, rather than only the insolvency of individual institutions, he said.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)