* Designating SIFIs might encourage banks to bulk up -IIF
* Capital surcharges not the answer -SocGen CEO
* Banks concerned over liquidity
By Lionel Laurent
PARIS, Jan 24 (Reuters) - Plans to saddle large banks with extra safeguards risk making the financial system more unstable and could increase the prevalence of "too big to fail" institutions, a leading bank lobby group warned on Monday.
"Imposing simple capital surcharges is not the right way to strengthen systemic stability," said Frederic Oudea, chief executive of France's Societe Generale and a director of the Institute of International Finance (IIF).
Speaking after a meeting of the IIF's committee on regulatory capital, which Oudea chairs, he warned that singling out some banks as systemically important would create a two-tier market and would not solve the issue of "too big to fail" institutions.
Global supervisors are hammering out a package of measures designed to make big, complex banks -- or systemically important financial institutions (SIFIs) -- safer and less of a burden to the taxpayer in case of future crises.
It could force them to hold an extra capital cushion, possibly of 2 percentage points.
"There is a risk that this will create pressures for concentration and hence intensify the problem of 'too big to fail' rather than eliminating it," said Oudea in a statement after the IIF meeting. "We need to look at ways to increase the resilience and resolvability of these firms," he added.
Oudea also slammed proposals to measure banks' liquidity under the tougher Basel III regulatory regime, which world leaders have agreed to phase in from 2013 to 2018.
Echoing recent comments by European Central Bank board member Christian Noyer, Oudea said proposed liquidity ratios were unrealistically conservative in their definition of what counted as a liquid asset.
He said changes would be necessary and warned the liquidity proposals risked hurting banks' ability to finance the economic recovery, reiterating arguments used by the industry in 2010 to fight tougher capital ratios under Basel III.
Oudea also called for a task force under the Group of Twenty countries' umbrella -- this year led by France -- to forge agreements on how to unwind failing banks with cross-border operations, or cross-border resolutions.
"It should be possible to make progress if the political will exists," Oudea said.
The Washington, D.C.-based IIF represents more than 430 financial institutions including Deutsche Bank, HSBC, Citigroup, JPMorgan and UBS. (Editing by David Holmes)