UPDATE 1-Fed's George advocates putting a community banker on Fed board

Wed May 21, 2014 2:14pm EDT

(Adds comments on risks of keeping interest rates low for too long)

WASHINGTON, May 21 Reuters) - The U.S. Federal Reserve would be stronger if one of the currently empty seats on its board were filled by someone with experience in community banking, a top official at the central bank said on Wednesday.

Kansas City Federal Reserve Bank President Esther George said one of the Fed's strengths is that its decentralized structure keeps it close to banks far from Wall Street. The Fed has branches across the country whose presidents rotate into voting positions on the central bank's policy-making committee.

George said experience with banking in America's hinterlands would help the Fed's powerful board, which is based in Washington and whose members always have a vote on monetary policy. The board currently is operating with only four of its seven seats filled.

"The Federal Reserve Board would be strengthened by having someone with community banking or community banking supervision experience to fill one of its current openings," George said in a speech to the Exchequer Club.

Sources told Reuters last month the White House is currently weighing candidates for the board with community banking backgrounds, including Diana Preston, a lawyer who recently left a post at the American Bankers Association (ABA), which represents many small banks.

Community bank lobbyists and lawmakers from both political parties have pushed for a representative of small banks on the Fed board since Elizabeth Duke resigned in August. Fed Chair Janet Yellen has also advocated that position.

Duke, who had worked for small banks and was a past chairman of the ABA, was seen as the board's voice for smaller banking firms and periodically spoke about the state of community banking.

George did not comment in her speech on the outlook for the U.S. economy or monetary policy, though in a question-and-answer session she reiterated her concerns that holding interest rates super low for an extended time could fuel excessive increases in asset prices.

The Fed has kept overnight rates between banks close to zero since 2008, and many economists worry the easy money policies could eventually create bubbles in the U.S. economy. (Reporting by Jason Lange; Editing by Andrea Ricci)