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UPDATE 1-Fed vice chair nominee Fischer defends Citigroup stint

(Recasts with Citigroup ties, adds comments, background)

WASHINGTON, March 13 (Reuters) - Fed vice chair nominee Stanley Fischer on Thursday defended his ties to Citigroup Inc, saying that he would have been ill-prepared for his last central banking job without his experience at the mega-bank.

"My three years at Citigroup were the most important element in my education that enabled me to be an effective supervisor of banks, which was one of my duties as Governor of the Bank of Israel," Fischer told members of the Senate banking committee.

"Without that experience I would have come to it largely with an academic background, without ever having seen the inside of a bank."

The fact that a top U.S. banking regulator would have ties to one of the big banks under the Fed's oversight was expected to be a potential focus of the hearing.

Fischer made the comments in response to a query from Senator Elizabeth Warren, who suggested that too many government employees are former Citigroup executives, potentially putting the government "under the grip of a tight-knit group" and making economic policy vulnerable to "groupthink."

Treasury Secretary Jack Lew is among the top administration officials with Citigroup ties.

Fischer left Citigroup in 2005, well before the firm had to be bailed out by the U.S. government during the financial crisis.

Speaking after the exchange with Warren, Senator Charles Schumer suggested he believed Fischer's banking experience would be an asset.

Fischer also used his nomination hearing to touch on some elements of monetary policy, stating that he believes the Fed already has begun to put the super-easy monetary policies of the last five years behind it.

"I think the exit is beginning, or has begun," Fischer said. "The extent of the purchases of the Fed, the monthly amount that is being purchased, is being reduced, and conditions for the continuation of that have been described."

The Fed has kept interest rates near zero for more than five years, and bought trillions of dollars in Treasuries and housing-backed securities to push down long-term borrowing costs and rev up the economy.

In December it announced that it was beginning to trim these monthly purchases of securities, and Fed officials have said they expect to wind the program down later this year as long as the economy continues to improve.

When then-Fed Chairman Ben Bernanke first hinted last May that the bond-buying program would be drawn to a close, markets swooned in response.

"When the actual tapering began, it had a much more stable impact," Fischer said. "And that seems to be continuing."

Two other Fed nominees, Lael Brainard and Jerome Powell, were also being vetted by the Senate panel.

"It is obvious that our job market is much weaker than it should be at this point in the recovery," Brainard told the lawmakers.

(Reporting by Jason Lange and Krista Hughes; Writing by Ann Saphir; Editing by Chizu Nomiyama and Paul Simao)

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