Fed's Hoenig-Taking on "too big to fail" key reform

NEW YORK, June 30 (Reuters) - Policy-makers must target the issue of how to treat systemically important firms that are seen as too big to fail, Thomas Hoenig, president of the Kansas City Federal Reserve Bank, said on Tuesday.

The process needs to operate fairly and be free from political influence, or it could merely encourage new, risky behavior, Hoenig said in remarks prepared for a speech to the New York University Stern School of Business in New York.

"It will not be realistic for any authority in any regulatory structure to oversee a system where incentives remain to take on excessive risk," Hoenig said.

Management should be replaced at failed firms, Hoenig said. "Restructured firms must have new -- and more careful -- management and ownership."

The policy-maker also decried a "dereliction of duty" among the top management of some financial firms in the lead-up to the financial crisis that helped trigger a global recession.

"Far too few senior executives in these largest organizations believed it was their responsibility to understand the financial products their company was buying and trading in quantities of billions and trillions of dollars," Hoenig said.

Hoenig, who is not a voting member of the U.S. central bank's Federal Open Market Committee in 2009, did not address the economic outlook in his prepared remarks.

(Reporting by Steven C. Johnson, Writing by Ros Krasny in San Francisco, Editing by Chizu Nomiyama)