By Sarah N. Lynch

WASHINGTON (Reuters) - The U.S. Senate Banking Committee has set up an investigative team in recent weeks that will probe issues ranging from financial regulation to insurance fraud, part of a drive by its new chairman to beef up the panel's oversight function.

Senate Banking Chairman Richard Shelby, who took the top post this year after Republicans gained control of the Senate, had pushed for the committee to establish an investigation team throughout the 2007-2009 financial crisis, while the panel was controlled by Democrats.

“I have long believed that the Banking Committee should be able to conduct its own vigorous oversight," Shelby said in a statement to Reuters.

Senior Republican Senators such as Charles Grassley of Iowa have often pushed for congressional committees to devote resources to hire investigators, noting that investigative efforts can often have has much of an impact on policy as drafting legislation.

Grassley has long hired investigators for various committees he has chaired and also kept investigators on staff when he was in the minority.

He has been vocal in spearheading numerous probes, with prominent targets including the botched anti-gun-trafficking program along the U.S. Mexico border known as Operation Fast and Furious.

For the banking committee's new team, one potential target, said a Republican Senate aide, is a regulatory panel created as part of the sweeping Dodd-Frank Wall Street reform law that has the power to designate companies as systemically risky, a designation that incurs greater oversight.

The committee, known as the Financial Stability Oversight Council, is chaired by Treasury Secretary Jack Lew and has been unpopular with some conservatives.

In addition, the Senate Banking Committee investigators are already looking into charges of fraud related to Hurricane Sandy flood insurance claims.

The three-person team - the first such operation for the committee in at least eight years - includes one former Senate Select Committee on Intelligence staffer and two staffers who worked for financial services and oversight panels in the U.S. House of Representatives, the Republican committee aide told Reuters.

In addition, Senate Banking Committee Ranking Member Sherrod Brown is also separately hiring a new investigator to work for the Democrats, a Democratic committee aide said.

Although the committee under former Democratic Chairman Chris Dodd was responsible for writing the Dodd-Frank law after the crisis, the panel did not conduct any formal investigations or hire staff to probe the issues.

Most of the in-depth probes into the crisis were conducted by another Senate panel - the Permanent Subcommittee on Investigations (PSI) - which produced major reports exploring the roles that firms like Goldman Sachs and credit-raters like Standard & Poor's played as the U.S. economy plunged into a crisis.

Bob Roach, who was a chief investigator at the PSI, will serve as the Democrats' new investigator starting next Monday, the Democratic aide said.

Shelby, who served as ranking member of the banking committee during Dodd's tenure, was unhappy at the time at the lack of a deep dive into the causes of the crisis, the Republican committee aide said.

The aide added that Shelby had previously planned to launch an investigative team when he was chairman of the committee in 2006, but Republicans lost the majority in the Senate before he had a chance to set one up.

Brown, in a statement to Reuters, said he agrees that more oversight should be conducted. "I look forward to working with Chairman Shelby," Brown said.

The Senate Banking Committee has jurisdiction over a wide range of financial market issues relating to banks, stock brokers, exchanges, insurers, asset managers and mortgage services. It also oversees aspects of foreign trade, housing, federal monetary policy and matters related to government-backed flood insurance.

The new investigative team, which became fully staffed earlier this month, does not have subpoena power, but the findings from its informal investigations could potentially prompt the banking committee to decide to issue subpoenas or authorize full-blown probes, the Republican aide said.

HURRICANE SANDY PROBE

The early-stage Hurricane Sandy flood probe was kicked off after New York and New Jersey homeowners alleged in a lawsuit that engineering firms doctored reports so that the insurance companies could deny payments to water damage victims in those states.

The New York and New Jersey attorneys general, along with the Department of Homeland Security Inspector General are also conducting criminal probes into the matter, a spokesman for the Federal Emergency Management Agency said.

William "Chip" Merlin, an attorney who represents hundreds of Hurricane Sandy victims, said he welcomes the scrutiny by the Senate Banking Committee, which had been requested by several lawmakers including Banking Committee Democrats Charles Schumer of New York and Robert Menendez of New Jersey.

“It is about time. There ought to be some transparency about what is going on,” he said.

One topic that may be of interest to the committee's new investigators is the FSOC's relationship with the Financial Stability Board, an international regulatory arm of the Group of 20 leading economies.

Republicans, including Shelby, have openly questioned whether the FSOC's decisions to designate financial institutions as systemically risky may have been influenced in part by the FSB.

(Reporting by Sarah N. Lynch, Editing by Soyoung Kim and Christian Plumb)