UPDATE 7-Obama starts to put stamp on Fed with Tarullo

(Adds analysis, quotes)

By Caren Bohan

CHICAGO, Dec 18 (Reuters) - U.S. 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 Jan. 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. For details, see [ID:nN18396900].

If Tarullo wins confirmation, he would serve out the rest of that 14-year term, which ends on Jan. 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."

Tarullo has more profile as a banking regulatory expert than as a monetary economist, and some analysts noted that may reflect a feeling that current strained credit conditions require a more thorough understanding of banking than of how to handle interest-rate policy.

NEED MORE LENDING

"The central obstacle to bank hesitancy about lending has to do with their concerns about preserving capital adequacy," said a global hedge fund manager, who requested anonymity. "His work in this area is as deep and careful as any that's been done ever."

"The central challenge of the Federal Reserve is to get the credit channels open," he said.

Tarullo would join Fed Chairman Ben Bernanke as the central bank tries to ease a credit crisis and combat a deepening recession that took it into unprecedented policy territory on Tuesday as it dropped official interest rates 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.

The Fed's normal 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.