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By Dave Clarke

WASHINGTON (Reuters) - the Federal Reserve will soon publish guidance for banks to increase dividend payments, Daniel Tarullo Fed Governor said Friday, but he warned that they would have to meet strict standards.

Banks will be required to submit plans "which demonstrate their ability to absorb losses during the next two years under an unfavorable economic scenario that specify us and remains amply capitalised" Tarullo said in a speech at George Washington University law school.

Tarullo also used his speech to advocate that banks continue to changes in the mortgage rather than seizures, in most cases, it would be a better result for all interested parties.

On dividends, he says banks will also have to demonstrate they can meet the new capital requirements outlined in the recent III of Basel international agreement and they can "welcome a change in business model" required by the new law of fiscal reform.

He said: "We expect also that companies will have a sound estimate of any significant risks that cannot be seized by the stress tests, such as mortgage putback potential exposures and the capacity to absorb losses resultant,".

Tarullo says that the direction of dividends would in effect in the first quarter of next year.

Banks have been pushing to stimulate the dividendes.Mais, regulators have coldly give the go-ahead, citing uncertainty about the Economic Outlook and the new rules on capital.

With global rules on capital and redevelopment of the U.S., Tarullo financial regulatory system said it is easier for the Fed measure if strong banks should be allowed to increase dividends.

Tarullo wading in the controversy over the practices of locking mortgage and such global banks have not been enough to further changes in loan to borrowers having trouble making payments.

"It just cannot be the case that locking is preferable to modification - including reductions in the main - a significant proportion of mortgages, where DWT locking, including a fee reduction in distress, sales are high," he said.

State and federal officials, including the Fed, are investigating allegations that years banks examined properly locking documents or made misrepresentations to expel defaulting borrowers.

Tarullo provided no details on what the review has uncovered but said he hoped it would help spur loan modifications.

He regretted the current situation where banks are not changes and borrowers continuing stop making payments and remain in their homes, sometimes more than a year.

"This simply is not a good result from broad perspective — not for the Renaissance of housing markets, not for banks and investors who have delinquent mortgages and long-term steps even for the owners themselves, which will be finally move," said.

CAPITAL STANDARDS

Tarullo also stressed the importance of the agreement of Basel III and said that most American banks should easily be able to meet its requirements before the deadlines.

Basel rules that must be implemented by each country, will force the banks to hold more capital equal to 7% of risk bearing assets quality of triple-play of current standards, better resist economic downturns and financial shocks.

Banks have until 2015 to meet the requirement of minimum core level 1, which consists of actions and retained earnings worth less than 4.5 per cent of the actifs.Un capital additional 2.5 per cent "capital conservation buffer" must be implemented by 2019.

Basel negotiators have told big banks which are important for the proper functioning of financial markets should meet the capital needs additional .jusqu ' here, however, no specific agreement was struck on the way to put this idea into practice.

"We believe that it serves us interests to develop our plans implementation of our domestic statutory obligation in tandem with our participation in the international process," said Tarullo. "Work on this issue in the Basel Committee and the financial stability Board will continue until next year.?

(Statement by Dave Clarke, Edition by Neil Stempleman)

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