U.S. financial regulation reforms outlined

By Kevin Drawbaugh

WASHINGTON (Reuters) - The Obama administration will target critical weaknesses in the troubled U.S. financial system, such as thin bank capital cushions and eroded lending standards, when it proposes an overhaul of financial regulation this week, two senior officials said on Monday.

In the fullest summary to date of the administration's reform proposal, Treasury Secretary Timothy Geithner and White House economic adviser Lawrence Summers said the plan will also urge stronger consumer and investor protections and new powers for the Federal Reserve.

The two officials outlined the plan in The Washington Post ahead of the release on Wednesday of a detailed package of proposals that has been under discussion for six months.

Months of debate in Congress over the plan lie ahead, with time on the side of the status quo, especially if the economy continues to improve and public outrage at the banks begins to fade. Administration officials have argued a rewrite of U.S. financial rules is needed to prevent future crises.

The outline offered few new details on elements of the plan that were already known and sidestepped unanswered questions about streamlining bank supervision, restraining executive pay and regulating over-the-counter (OTC) derivatives.

But it did clearly underline the administration's determination to give the Fed a central role, and to create a new way for the federal government to handle troubled firms whose failure could pose a risk to the economy.

President Barack Obama will make remarks on Wednesday on "his comprehensive plan for new rules of the road for the financial industry," a White House official said. Geithner will joint him at the event.

The Treasury secretary and Summers said that a key administration goal will be "raising capital and liquidity requirements for all institutions, with more stringent requirements for the largest and most interconnected firms."