Obama starts to put stamp on Fed with Tarullo

CHICAGO (Reuters) - President-elect Barack Obama on Thursday moved to put his stamp on the Federal Reserve with the choice of law professor Daniel Tarullo for a seat on the central bank's board in what could be the beginning of a wider overhaul.

The 57-year-old Tarullo, a professor at Georgetown University, has been a senior economic adviser to Obama and was former President Bill Clinton's top adviser on international economic policy.

Tarullo will take over the spot currently held by Fed Governor Randall Kroszner. Though Kroszner's term ended on January 31, he can serve until replaced. President George W. Bush had nominated Kroszner for a second term in May 2007, but the Senate never approved the nomination.

If Tarullo wins confirmation, he would serve out the remainder of that 14-year term, which ends on January 31, 2022.

"Dan will bring a lifetime (of) experience to the Fed in economic policy and financial regulation," Obama said at a news conference. "I have no doubt that his knowledge, experience and independence will make him a valuable addition to the Federal Reserve at this critical time."

Obama also said he was nominating longtime financial regulator Mary Schapiro to head the Securities and Exchange Commission and former Treasury official Gary Gensler to head the Commodity Futures Trading Commission.

Tarullo would join Fed Chairman Ben Bernanke as the central bank tries to ease a credit crisis and combat a deepening recession that has taken it into unprecedented policy territory with official interest rates pushed virtually to zero.

"If confirmed by the Senate, I look forward to working with Chairman Bernanke ... in helping to steer the economy through these difficult times and in adjusting regulatory and supervisory practices so as to maintain a stable and efficient financial system," Tarullo said.

MORE NAMES COMING

The Fed's normally seven-person Board of Governors -- the power center for U.S. monetary policy -- currently has two vacancies in addition to the seat Tarullo would fill.

This means Obama could quickly name two more nominees for the Washington-based board.

Yet another seat would open up if Fed Governor Kevin Warsh is named to head the New York Federal Reserve Bank, for which he is considered a front-runner. If that were to happen, Obama could be in the unusual position to name a majority of the Fed's board early in his term.

In addition, Obama will need to decide possibly by next fall whether to renominate Bernanke for a second four-year term as chairman. His current term ends on January 31, 2010.

There has been speculation that former Treasury Secretary Lawrence Summers may be being groomed for the Fed's top job. Obama has tapped Summers to head the White House National Economic Council, a position that could give him great sway over the direction of the new administration's policies.

Economists give Bernanke high marks for acting aggressively and with imagination to counter a worldwide credit crunch, but he was unable to avert what already is the longest U.S. recession since the early 1980s.

On Tuesday, the Fed entered new policy territory by slashing interest rates to a range of zero to 0.25 percent and vowed to keep pumping money into clogged credit markets to try to counter what threatens to become a global recession.

EYE ON REGULATION

Tarullo has just published a book on global banking regulation that discusses the need for tightening capital standards in the wake of the implosion of markets for securitized mortgages in 2007. Analysts expect some of his ideas to be put into practice as a preventative measure for future crises.

"It seems that the Obama administration is very serious in not only tackling the current economic woes, but also setting up a framework (so) that it does not happen again," strategists at 4CAST Ltd. of New York said in a research note.

"This nominee seems to underscore this sentiment, although we will have to wait and see how much Tarullo may want to possibly increase the role of the Fed as a regulator for better or for worse," they said.

Tarullo held several senior positions in the former Clinton administration, serving first at the State Department before moving over to the White House. He was Clinton's personal representative to the Group of Seven industrial nations from 1995 onward, in charge of coordinating U.S. positions for the annual summits of leaders from the United States, Britain, Canada, France, Germany, Italy and Japan.

(Additional reporting by Glenn Somerville and Nancy Waitz in Washington and Ros Krasny in Chicago; writing by Tim Ahmann and Glenn Somerville, Editing by Chizu Nomiyama)