Banks worldwide need to strengthen their balance sheets to stabilize the financial system, senior U.S. regulators said on Tuesday.

With global bank standard-setters hammering away at new capital rules, Federal Reserve Governor Daniel Tarullo told a Senate panel that large financial institutions need to hold more capital to weather tough times.

Our view is that large institutions should be sufficiently capitalized so that they could sustain the losses associated with a systemic problem, Tarullo, the Fed's point-man on regulatory issues, told a Senate banking subcommittee.

Meeting this standard will require considerable strengthening of existing requirements.

An international push to beef up bank capital and liquidity requirements is being led by the global Basel Committee of central bankers and supervisors in Switzerland. It is working to toughen a global accord as requested by the Group of 20 nations to take effect from the end of 2012 over several years.

Profits at some of the world's largest banks and financial firms are threatened by higher standards, although many have already strengthened their balance sheets since the financial crisis.

Setting a high hurdle for the rest of the world, the U.S. Congress on Thursday approved the biggest overhaul of bank and capital market regulation in decades.

President Barack Obama is expected to sign the far-reaching bill into law on Wednesday, while regulators will spend the next two years fleshing it out and implementing it.

The bill will create a government watchdog to protect financial consumers; give authorities a new way to dismantle troubled financial firms; curb risky trading by banks and force them to strengthen their balance sheets; among other steps.

The bill makes good on pledges made by G20 member nations in 2009 to take steps to avoid a repeat of the 2007-2009 crisis that slammed economies globally.

The bill left most of the details on capital standards to be set by the Basel process.

U.S. Treasury Undersecretary Lael Brainard told the Senate panel that the financial crisis showed banks worldwide need to hold more capital to ensure they can weather downturns.

The lesson is clear: more and higher quality capital must be at the core of our efforts to ensure a more resilient financial system less prone to failure, Brainard said.

The Dodd-Frank bill -- named after its Democratic co-authors Senator Christopher Dodd and Representative Barney Frank -- tells regulators to increase capital requirements on firms as they get bigger and take on riskier activities.

The EU is approving new rules to beef up capital on trading books and allow supervisors to slap on extra capital requirements if pay encourages excessively risky behavior. It will debate a further set of rules at the turn of the year to toughen up definitions of capital and introduce leverage caps.

The EU is now under pressure to match the United States in areas such as consumer protection, dealing with distressed firms, supervising banks and regulating hedge funds and the sprawling over-the-counter derivatives market.

(Additional reporting by Huw Jones in London. Writing by Kevin Drawbaugh, Editing by Chizu Nomiyama)