Dec. 18 (Bloomberg) -- President-elect Barack Obama today picked one of his economic policy advisers, Daniel Tarullo, to serve on the Federal Reserve Board.

Tarullo, 57, a professor at Georgetown University’s law school, will probably play a key role working with the Fed’s counterparts to craft changes in global regulation of banking and finance. He served as President Bill Clinton’s top adviser on international economic policy.

If confirmed by the Senate, Tarullo would join Chairman Ben S. Bernanke and other members of the Board of Governors as they seek to ease the worst credit crunch in seven decades and reverse a deepening, yearlong recession.

He “will bring a lifetime of experience to the Fed in economic policy and financial regulation,” Obama said in a news conference in Chicago today. His “academic and policy work has anticipated some of the problems we have observed,” Obama said, praising Tarullo for “knowledge, experience and independence.”

Obama also named brokerage regulator Mary Schapiro to head the Securities and Exchange Commission and Gary Gensler, a former Treasury undersecretary, to lead the Commodity Futures Trading Commission.

Tarullo would fill a seat on the board currently held by Fed Governor Randall Kroszner, an Obama transition official said on condition of anonymity. Kroszner’s term expired in January, and he has continued to serve since then under Fed rules that allow him to stay until the Senate confirms him or a successor.

Two Slots

Fed board terms last 14 years, though governors often resign before the full period is up. The term of Kroszner’s seat ends in January 2022. The other two slots are for terms that end in 2010 and 2014.

The central bank seeks to “have at least somebody that’s well versed in international aspects of finance and economics,” said David Cohen, director of Asian forecasting at Action Economics in Singapore and a former Fed official.

The Fed board has two other vacancies on its seven-member panel, after the departures of Columbia University Professor Frederic Mishkin in August and former banker Susan Bies in March 2007.

The Democratic-majority Senate declined to hold a vote on President George W. Bush’s nomination of Kroszner, 46, to a new, full 14-year term. Kroszner, an economics professor on leave from the University of Chicago, has focused on financial regulation at the Fed.

High-Cost Loans

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, said in January that consumer protection rules on high-cost loans which Kroszner helped draft “did not go far enough.”

Dodd has repeatedly said the central bank failed to adequately supervise the subprime mortgage market. At a two-hour hearing in August 2007, he criticized the Fed’s approach to subprime lending and credit cards as “unsatisfactory.”

Tarullo was an early supporter of Obama, frequently representing the president-elect’s campaign in economic discussions and debate. He was President Bill Clinton’s personal representative, or sherpa, to the Group of Eight countries, overseeing and coordinating policy with America’s partners for four summits.

Before joining the Clinton administration in 1993, he served as chief counsel for employment policy on the staff of Democratic Senator Edward M. Kennedy of Massachusetts. He also worked in the antitrust division of the Justice Department.

‘Keen Understanding’

Tarullo is “a seasoned policy maker who has a keen understanding of the challenges confronting global financial markets and the economy,” said Timothy Adams, a former Treasury undersecretary and now managing director at the Lindsey Group in Washington.

In a book published in October by the Peterson Institute for International Economics in Washington, Tarullo was critical of the international regulatory and banking capital regime created under so-called Basel Two. The new structure may have worsened the credit crisis if it had been fully in place because it put a low risk weighting on residential mortgages, he said.

Tarullo proposed a number of reforms, including adoption of a simple leverage ratio that international banks would need to meet and a requirement that they issue subordinated debt. He also recommended that the Basel Committee -- the panel of international regulators that fashioned Basel Two -- be given the role of monitoring and scrutinizing banking regulation in individual countries.

John Podesta, the former Clinton chief of staff who’s now co-chairman of Obama’s transition team, has described Tarullo as a policy maker who “escapes easy labeling.”

‘Especially Valuable’

“That makes him especially valuable in finding new solutions to a new set of thorny problems,” added Podesta, who is president of the Center for American Progress, a self- described progressive advocacy group in Washington.

William Antholis, who served with Tarullo in the Clinton White House and is now at the Brookings Institution in Washington, said the Fed nominee’s ties with the incoming Obama administration should also prove helpful to the central bank as policy makers work to surmount the current crisis.

“The recent crisis hasn’t been purely economic, but instead one about economics and regulation,” said Antholis.

Tarullo would stand out from current Fed governors. He doesn’t have an academic background in economics or a career history in banking, with law being the focus of his educational background. Among the current five Fed board members, three have doctorates in economics, one is a former investment banker and one is a former community banker.

Emergency Lending

The Fed cut the benchmark interest rate this week to a record low ranging from zero to 0.25 percent and pledged to “employ all available tools” to revive the economy, including emergency lending that has expanded the central bank’s balance sheet to a record $2.3 trillion.

The economy has yet to show signs of vitality after nine rate cuts by the Fed in 14 months and $1.4 trillion in extra liquidity. Unemployment rose to 6.7 percent last month, the highest level since 1993, while builders broke ground on the fewest new homes since record-keeping began in 1947.

“Our country faces financial and economic challenges of a greater magnitude than we’ve seen for decades,” Tarullo told reporters today in Chicago.

To contact the reporter on this story: Rich Miller in Washington at rmiller28@bloomberg.net;

Last Updated: December 18, 2008 15:49 EST