By Susan Heavey

WASHINGTON (Reuters) - Former Federal Reserve Chairman Paul Volcker, most recently known for his efforts to rein in Wall Street's risky lending habits, is now targeting Washington with a nonpartisan policy group aimed at bolstering public trust in basic government service.

The Volcker Alliance will sponsor studies on government performance, make recommendations on public policies, and work to improve the implementation of government policy at federal, state and local levels, the group said in a statement.

Volcker cited citizens' declining trust over the past few decades. "Too often government, at all levels, in the eyes of its citizens, has been unable to respond effectively to the challenges of the day," Volcker said in a statement.

The 85-year-old, who was scheduled to speak later on Wednesday at The Economic Club of New York, said he had been thinking about forming such a group for years.

While not inspired by recent scandals involving the Internal Revenue Service and the Justice Department under the Obama administration, he said such problems "underscore the relevance that government's execution of its policies has on the lives of its citizens."

Volcker, who led the Fed's charge to end high inflation in the 1970s, was tapped by Obama in 2008 to lead a two-year advisory board to help steer an economic recovery plan. He is also known for the namesake rule under the 2010 Dodd-Frank overhaul of Wall Street to protect taxpayers from bank bailouts.

The so-called Volcker rule would bar banks from betting their own money on financial markets, but it is unclear when the rule will be finalized and some have said it does not go far enough.

His new group aims to rekindle taxpayer confidence in government, as well.

Unlike other Washington "think tanks" that focus "on issues of 'high policy,' Volcker said his effort "will endeavor to rekindle intellectual, practical, and academic interest in the implementation of policy - the ‘nuts and bolts' of governance."

It will be run by Shelley Metzenbaum, an expert in measuring public sector performance who has worked in Washington and at various universities. Its board includes former U.S. Securities and Exchange Commission chairman Bill Donaldson and former Federal Reserve Vice Chairman Alice Rivlin, among others.

(Editing by Chizu Nomiyama)

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