Obama urges historical financial reforms

By Kevin Drawbaugh

WASHINGTON (Reuters) - President Barack Obama laid out his vision for recrafting U.S. financial regulation on Wednesday, vowing to halt "a cascade of mistakes ... over the course of decades" that eroded bank and market oversight.

The Obama plan, under development for six months, next goes to the U.S. Congress for debate, where more than a dozen committee hearings are scheduled between now and mid-July.

The plan takes on some tough jobs, such as forcing large financial firms to boost their capital cushions and regulating over-the-counter derivatives and securitized instruments.

But it only partially tackles a task once seen as vital -- a top-to-bottom revamp of 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.

A centrepiece of the plan is vesting the Federal Reserve with new powers over "systemic risk" in the economy with the aim of preventing future disasters like September's collapse of former Wall Street giant Lehman Brothers and the taxpayer bailout of mega-insurer American International Group.

"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression," the president said in a speech at the White House.

Obama is walking a tightrope. He must avoid clamping down too hard on financial interests, stifling their role in driving growth in an economy that is trying to dig out of a recession.