FACTBOX: Obama plan for tightening U.S. financial regulation

(Reuters) - The Obama administration's plan for tightening financial regulation has been outlined by officials and sources familiar with discussions about its contents.

Here are the main provisions, as presented by Treasury Secretary Timothy Geithner, White House economic adviser Lawrence Summers, and as described by the sources:

*CAPITAL AND LIQUIDITY STANDARDS

Financial institutions would have to thicken their capital cushions to absorb losses when times are tough, and make themselves more liquid, or be able to move quickly in and out of various holdings, "with more stringent requirements for the largest and most interconnected firms."

*SYSTEMIC RISK REGULATION

Large, interconnected firms whose failure could threaten the financial system's overall stability would face new consolidated supervision by the Federal Reserve.

An inter-agency council of regulators with "broad coordinating responsibility" would also be set up.

*SECURITIZATION

Asset-backed securities issuers would face new reporting requirements, including loan-level data and compensation information on brokers, originators and sponsors. This information would be available to investors and credit-rating agencies throughout the life of a securitization.

Securitization originators, sponsors or brokers would have to keep at least 5 percent of the performance risk in them. Loan originators would be barred from transferring that risk.

Legal documentation for transactions would be more standardized to improve valuations. The Securities and Exchange Commission and the Financial Industry Regulatory Authority would expand the TRACE electronic trade reporting database now used for corporate bonds to include asset-backed securities.

Compensation of securitization brokers, originators, underwriters, sponsors and others would link to long-term performance and the interests of borrowers and investors.

Generally Accepted Accounting Principles would be changed to eliminate immediate recognition of "gain on sale" by originators in a securitization, requiring instead that originators reflect income over the life of the assets.

Fees and commissions received by loan brokers and loan officers would spread out over time and decline if a loan runs into trouble due to poor underwriting.

Sponsors of securitizations would have to stand behind securitized products sold to investors with warranties.

*CREDIT RATING AGENCIES

Reliance by regulators on credit-rating agencies would be reduced by changing some federal legal requirements covering debt issuance that encourage the use of credit ratings.

*CONSUMER, INVESTOR PROTECTION

An independent Consumer Financial Protection Agency would be formed, with the power to write and enforce rules for financial firms dealing with fair lending.

The agency would have the authority to require loan originators to retain 5 percent of credit risk. It would define standards for "plain vanilla" products such as mortgages with straightforward terms; restrict or ban prepayment penalties; and ensure that banks, nonbanks, and independent mortgage brokers follow the same rules.

It would also enforce the Community Reinvestment Act, which encourages banks to make loans in disadvantaged communities.

Related news: FACTBOX-Obama plan for Consumer Financial Protection Agency

*OTC DERIVATIVES

Oversight of over-the-counter derivatives would be imposed, as well as "harmonizing" of futures and securities regulation, and stronger safeguards for payment and settlement systems.

"All derivatives contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse," according to a statement from Geithner and Summers.

*RESOLUTION AUTHORITY

A federal government mechanism would be set up for "orderly resolution of any financial holding company whose failure might threaten the stability of the financial system."

Draft legislation for this "resolution authority" has already been proposed by the administration, with the Federal Deposit Insurance Corp expected to get this new duty.

(Additional reporting by Rachelle Younglai, Karey Wutkowski and Corbett Daly)