UPDATE 1-Bank of Canada says bank capital ratios too high

* Carney says bank capital ratios too high

* Says green shoots may not lead to sustained growth

* Repeats pledge to keep rates low through June 2010 (Adds details)

REGINA, Saskatchewan, June 18 (Reuters) - Canadian banks, ranked as the world's soundest, should use their large capital cushions to increase lending now that financial market uncertainty has abated, the Bank of Canada suggested on Thursday.

Bank Governor Mark Carney said improved confidence in the global banking system, helped by the results of U.S. stress testing, should relieve market pressure on Canadian banks to maintain what he called "inordinately high capital ratios".

"It would be welcome if buffers could serve their intended purpose, particularly in light of the extraordinary liquidity and funding support that public authorities have provided to our financial institutions," Carney said in a speech.

Carney warned against complacency over "green shoots" in the global economy, saying that even Canada's resilient financial system needs improvements and reforms to prepare it for the next crisis.

"We shouldn't presume that green shoots today guarantee a bumper crop tomorrow," he said in a speech in the agricultural province of Saskatchewan.

"Canada has a strong system, but this crisis has proven that even the best is not good enough," he said.