President Barack Obama laid out his vision for reshaping U.S. financial regulation on Wednesday, aiming to tighten oversight of large firms whose excessive risk-taking triggered a global economic slump.

The proposals, under development over the past six months are headed next for debate in the U.S. Congress and include closing one bank regulator and creating government watchdogs for big-picture economic risk and financial product safety.

The administration takes on tough jobs in the plan, such as forcing large firms to boost their capital cushions and imposing regulations on over-the-counter derivatives and securitized instruments.

But it only partially tackles one task once seen as vital -- a top-to-bottom revamp of existing financial regulatory agencies.

No merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) is being proposed, for instance, due largely to political obstacles.

With the reforms we are proposing today, we seek to put in place rules that will allow our markets to promote innovation while discouraging abuse, Obama said in remarks prepared for delivery later on Wednesday.

We seek to create a framework in which markets can function freely and fairly, without the fragility which in normal business cycles bring the risk of financial collapse, a system that works for businesses and consumers, he said.

Obama calls for putting the Federal Reserve in charge of monitoring systemic risk to the economy that may be posed by the largest financial firms, with the aim of preventing a repeat of the banking and capital markets crisis of the past year.

Months of congressional debate loom. Senate and House of Representatives committees will hold more than a dozen hearings on regulatory reform between now and mid-July. Conservative House Republicans have already offered a rival plan.

Obama will deliver his remarks at 12:50 p.m. EST, seeking to defend the plan as a balanced approach that restrains excessive risk, but doesn't clamp down so hard that firms would be prevented from helping drive economic growth.

The president and his top economic advisers see the current financial upheaval as the latest in a series of crises going back decades, so their regulatory reform intends to correct problems beyond just those blamed for the latest episode.


As detailed in an 88-page document, the Obama plan calls for closing the Office of Thrift Supervision, a Treasury Department unit, and eliminating the federal charter under which savings and loans operate, with the objective of streamlining bank supervision.

In addition, the Federal Reserve would be assigned new duties to monitor risks that could threaten the entire financial system, working in conjunction with a council of other regulators to be chaired by Treasury. [ID:nN16312203]

The goal is to make sure a failure of one company -- like bailed-out mega-insurer American International Group, for instance -- does not destabilize the broader economy.

For six months the administration has been discussing how best to tighten bank and market regulation in response to the crisis, with the European Union moving on a similar track and more quickly than the United States in some areas.

Under the Obama plan, the government would be empowered to seize and unwind large, troubled companies that are not banks, modeling the process on the Federal Deposit Insurance Corp's existing power to unwind failing banks.

The administration also urges reining in markets for securitized debt and over-the-counter derivatives, as well as more regulation of money market mutual funds, credit rating agencies, and hedge funds. In addition, it urges changes in corporate governance that could restrain executive compensation.

The U.S. Chamber of Commerce, the nation's largest business lobbying group, on Tuesday said it opposes key parts of the plan.

House Democratic leader Steny Hoyer said on Tuesday the House will deal with financial regulation reform in late July or soon after Congress' August recess. The outlook in the Senate, which moves more slowly, was unclear.

(Additional reporting by Corbett Daly, Karey Wutkowski, Patrick Rucker, Thomas Ferraro, Rachelle Younglai and Emily Kaiser; Editing by Neil Stempleman)