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UPDATE 1-Federal Reserve nominee Quarles pledges more transparency on bank stress tests

stress tests@ (Recasts after hearing begins)

WASHINGTON, July 27 (Reuters) - Randal Quarles, President Donald Trump's pick for banking oversight at the Federal Reserve, told lawmakers on Thursday he would ensure more transparency around how the central bank scrutinizes major lenders' preparedness for crisis in its annual stress tests.

"I do think the Fed can look at being more transparent about those activities and do it in away that doesnt reduce the effectiveness of those tests," Quarles told a confirmation hearing at the Senate banking committee.

Quarles, a former Wall Street lawyer and U.S. Treasury official, is expected to be confirmed as vice chairman for supervision at the Federal Reserve, a post that will be key to Trump's plan to loosen the leash put on big banks following the 2008 financial crisis.

Quarles told senators that he agreed with former Fed governor Daniel Tarullo, who effectively ran banking supervision until he stepped down in February, that some changes to the existing financial rules were needed, including raising the threshold at which banks are labeled systematically important and the level at which stress tests kick in.

Quarles was appearing in front of the committee with Joseph Otting, the nominee to be Comptroller of the Currency, which regulates national banks.

Opposition senators attacked both men's record in the aftermath of the financial crisis. Otting was a former chief executive of One West, a Californian lender that foreclosed on 36,000 homes after striking a lucrative deal with the Federal Deposit Insurance Corp.

Quarles meanwhile, benefited from government support for troubled and failed banks when he worked at private equity firm Carlyle.

Mr Ottings bank made money by kicking seniors out of their homes and then turned around and said the government made them do it" said Democratic Senator Sherrod Brown.

"Mr Quarles bemoaned the role of the government as a player in the financial sector rather than as a referee. Those sentiments would ring a little less hollow had their banks not accepted $2.5 billion from FDIC to protect them from losses.

Given that current Senate rules require only a slim majority to approve presidential nominees, neither is expected to face a realistic threat to their confirmation.

A spokeswoman for the Senate Banking Committee has declined to comment on how quickly the panel could vote on the pair, but Senate Republicans agreed to stay in session two additional weeks in August with an eye toward working through a backlog of nominees. (Writing by Carmel Crimmins)