Q+A: What are main issues about Obama's financial plan?

WASHINGTON (Reuters) - President Barack Obama released a plan on Wednesday to overhaul U.S. financial regulation in response to a banking and capital markets crisis that played a big role in pushing the economy into recession.

The plan is meant to prevent a repeat of the crisis by closing oversight gaps, requiring thicker capital cushions at financial companies and improving the protection of consumers and investors.

WHAT ARE THE MAIN CHANGES PROPOSED?

The Federal Reserve would monitor "systemic risk" in the economy, together with a council led by Treasury.

The Federal Deposit Insurance Corp would get power to seize and resolve the problems of troubled non-bank companies that pose risks to the economy. The U.S. Securities and Exchange Commission would get additional limited "resolution authority."

A National Bank Supervisor would be created, taking in the supervision duties of the Office of Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), both Treasury units. The thrift charter that is the legal basis of the savings and loan business would be eliminated and the OTS would be closed.

Financial companies would have to hold more capital to absorb losses when times get tough, and boost their liquidity, or their ability to move quickly in and out of various holdings.

Asset-backed securities issuers would face new regulation, as would hedge funds and credit rating agencies. An independent Consumer Financial Protection Agency would be formed.

Oversight of over-the-counter derivatives would be imposed, as well as "harmonizing" futures and securities regulation, and new payment and settlement system safeguards would be created.

WHY ARE THE CHANGES NEEDED?

The worst financial crisis in generations has thrown banking and capital markets into disarray, dragging down economies around the world.

The Obama administration and congressional Democrats see the crisis as rooted in failures going back years, in some cases decades, in regulation and behavior.

The president's proposals try to update a regulatory system formed largely during the Great Depression. The goal is to equip regulators to keep better track of markets that have grown in size and scope far beyond the government's view.

The proposals also try to address what Democrats see as an ill-advised government tendency in recent years to trust too much in markets' self-correcting and self-policing ability.

WHAT DO THE PLAN'S CRITICS SAY?

Critics who fear Obama is going too far question giving the Federal Reserve more power. Some have ideological objections to increased government control in the financial sector.

Critics who fear that Obama is not going far enough say that a more thorough overhaul of existing financial regulators is needed and that the approach to regulating over-the-counter derivatives looks too timid.

WHAT COMES NEXT FOR THE PLAN?

Obama wants to enact the plan into law before the end of the year. That may be overly optimistic.

The plan's main components must be put into proposed legislative language and sent to Congress for action. Some rough language has already been delivered.

The House of Representatives, where Democrats are in firm control, is likely to move quickly. But the outlook in the Senate, where Democrats are less dominant, is unclear.

WHAT IS THE EUROPEAN UNION DOING?

The European Union and the United States account for 70 percent of the world's capital markets. The Obama plan is broadly in line with EU reform efforts.

Banks would end up with heavier capital and liquidity standards on both sides of the Atlantic and credit rating agencies would be more tightly supervised.

Both the U.S. and EU plans call for new mechanisms to monitor systemic risk. EU leaders will endorse a plan later this week to set up a systemic risk body in 2010, with the European Central Bank playing a core role.

But Britain does not want the ECB to have such a powerful role and is against such binding powers. This resembles some concerns in Congress about Obama's plan to beef up the Fed.

(Reporting by Kevin Drawbaugh; Editing by Jan Paschal)