More rules and regulations are not always the best solution to problems in financial markets and government agencies must take a balanced approach to such decisions, an influential governor being considered to lead the Federal Reserve said on Thursday.

Fed Governor Jerome Powell, seen as a contender as U.S. President Donald Trump considers who might replace Fed Chair Janet Yellen, told a gathering of bankers, lawyers and investors that industry groups can help to "fill in the cracks" left by competing regulations enforced by various U.S. agencies.

Regulations require banks "to hold larger amounts of high-quality liquid assets so that they can safely meet their potential liquidity needs," he said.

"There is certainly a role for regulation, but regulation should always take into account the impact that it has on markets, a balance that must be constantly weighed. More regulation is not the best answer to every problem."

The comments, kicking off a meeting of the Fed-sponsored private-sector Treasury Market Practices Group, could be seen as an outline of Powell's potential approach to running the U.S. central bank.

Trump said last week he had interviewed four potential nominees for Fed chair, and would make a decision in two or three weeks' time. Yellen's term expires in early February, though she could be re-appointed.

Powell did not comment on monetary policy in his prepared remarks.