By Sarah N. Lynch, Douwe Miedema and Aruna Viswanatha

WASHINGTON, Feb 14 (Reuters) - A U.S. senator critical of Wall Street took regulators to task on Thursday for failing to take banks to court over misconduct, coming out swinging in her first public appearance as a member of the Senate Banking Committee.

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

Her comments quickly became the highlight of a hearing with the heads of seven regulatory agencies responsible for cracking down on financial abuses and preventing another blowup like the 2007-2009 financial crisis.

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

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

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

Warren directed her criticism at the Securities and Exchange Commission, which is appealing a court ruling that rejected a proposed $285 million settlement with Citigroup. In rejecting the accord, the judge challenged the SEC's practice of letting companies settle without admitting or denying the allegations.

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 asked for additional authority to go after firms for misconduct.

"I think Senator Warren was suggesting that we should take big Wall Street banks to trial even when we are getting all the relief we can get at trial through a settlement," Walter told reporters 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 a reputation as a tough adversary of big banks.

She led a congressionally appointed panel that was charged with keeping an eye on the government's bailout of the financial system and championed the creation of the Consumer Financial Protection Bureau, which was created by the 2010 Dodd-Frank oversight 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 Wall Street was undiminished.

Lawmakers also expressed concern about a settlement between more than a dozen banks and the Office of the Comptroller of the Currency and the Federal Reserve in which the banks agreed to pay some $9.3 billion to end case-by-case reviews of past home foreclosures.

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

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

Thomas Curry, who heads the OCC, said the settlement "isn't perfect" but that it was necessary to end a long, flawed review process that had grown expensive.

DODD-FRANK CHECK-UP

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

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

Lawmakers pressed the regulators on how various rules, such as a series of new mortgage regulations, would work together and whether the agencies are considering the impact of new rules on small banks.

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

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

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