UPDATE 1-U.S. senator to watchdogs: bring more banks to trial

* Senator Warren asks if regulators are tough on banks

* Warren says concerned big banks seen as too-big-for-trial

* Financial regulators update senators on Dodd-Frank efforts

By Sarah N. Lynch and Douwe Miedema

WASHINGTON, Feb 14 (Reuters) - A U.S. senator critical ofWall Street took regulators to task on Thursday for failing totake banks to court over misconduct, coming out swinging in herfirst public appearance as a member of the Senate BankingCommittee.

Elizabeth Warren, a Massachusetts Democrat, said U.S.financial regulators appear to have focused too much on ironingout settlements with large financial firms, as opposed to takingthem to trial for alleged misconduct.

Her comments quickly became the highlight of a hearing withthe heads of seven regulatory agencies responsible for crackingdown on financial abuses and preventing another blowup like the2007-2009 financial crisis.

"The question I really want to ask is about how tough youreally are," Warren said, drawing applause from spectators inthe packed room during an otherwise low-key hearing.

"I'm really concerned that too-big-to-fail has becometoo-big-for-trial," she said.

U.S. authorities in recent years have entered into a numberof major settlements with top banks over financial misconduct.

Warren directed her criticism at the Securities and ExchangeCommission, which is appealing a court ruling that rejected aproposed $285 million settlement with Citigroup. Inrejecting the accord, the judge challenged the SEC's practice ofletting companies settle without admitting or denying theallegations.

Previously, the same judge had turned down a $33 million SEC settlement with Bank of America Corp, later approving a$150 million accord.

SEC Chairman Elisse Walter told Warren the agency has askedfor additional authority to go after firms for misconduct.

"I think Senator Warren was suggesting that we should takebig Wall Street banks to trial even when we are getting all therelief we can get at trial through a settlement," Walter toldreporters after the hearing. "I understand that point of view,but I don't agree with it."

COP ON THE BEAT

Warren, who was elected in November, already had areputation as a tough adversary of big banks.

She led a congressionally appointed panel that was chargedwith keeping an eye on the government's bailout of the financialsystem and championed the creation of the Consumer FinancialProtection Bureau, which was created by the 2010 Dodd-Frankoversight law and which she set up.

She has kept a low profile since taking office last month,but on Thursday showed that her appetite for policing WallStreet was undiminished.

Lawmakers also expressed concern about a settlement betweenmore than a dozen banks and the Office of the Comptroller of theCurrency and the Federal Reserve in which the banks agreed topay some $9.3 billion to end case-by-case reviews of past homeforeclosures.

New Jersey Democrat Bob Menendez asked whether it was fairto end the reviews if certain borrowers still wanted them.

"Despite keeping their legal rights to sue the banks, mostborrowers don't have the financial means to litigate their casesif they feel the compensation was inadequate," he said.

Thomas Curry, who heads the OCC, said the settlement "isn'tperfect" but that it was necessary to end a long, flawed reviewprocess that had grown expensive.

DODD-FRANK CHECK-UP

The hearing was intended to check in on regulators' progresswriting dozens of new rules required by Dodd-Frank, including aban on proprietary trading known as the Volcker rule and newregulations for the over-the-counter swaps market.

Committee Chairman Tim Johnson, a Democrat from SouthDakota, cited a new Government Accountability Office report thatsaid the crisis may have cost the U.S. economy more than $10trillion and asked regulators to move forward with efforts tomake the financial system more durable.

Lawmakers pressed the regulators on how various rules, suchas a series of new mortgage regulations, would work together andwhether the agencies are considering the impact of new rules onsmall banks.

Sen. Mike Crapo of Idaho, the committee's top Republican,said regulators need to give more information on how new rulesfor the over-the-counter swaps market would apply overseas.

"There is a bipartisan concern that some of the Dodd-Frankrules go too far and need to be fixed," he said.