U.S. Federal Reserve Chairman Ben Bernanke said on Friday that requiring big banks to hold more and higher quality capital could help address the "too-big-to-fail" problem in a way that stops short of demanding a break-up of the firms.

"Certainly one direction that we could go forward would be, in my view one constructive direction ... is through the capital direction," Bernanke told a conference sponsored by the Chicago Federal Reserve Bank. "Rather than arbitrarily saying that banks could be no larger than such and such a size, for example, I would argue that what we need to do is make sure that larger institutions have to have more and better quality capital."

(Reporting by Tom Polansek; Writing by Tim Ahmann; Editing by James Dalgleish)