Obama adviser discusses regulatory reform

WASHINGTON (Reuters) - Following are excerpts from an interview with Austan Goolsbee, economic adviser to U.S. presidential candidate Barack Obama, about the Democratic candidate's approach to overhauling financial regulation.

WHEN COULD A REGULATORY OVERHAUL BEGIN?

"It could be early," Goolsbee said, noting that Senate Banking Committee Chairman Chris Dodd and House of Representatives Financial Services Chairman Barney Frank have already begun discussion in Congress.

"Clearly any overhaul would require the president working with Congress and leaders of both parties."

DIFFERENCES WITH PAULSON PLAN

Obama and U.S. Treasury Secretary Henry Paulson agree on some points, such as the idea that "we ought to regulate the financial institutions by what they're doing rather than by who they are," Goolsbee said.

But he said much of the Treasury report is anachronistic "with far too little attention paid to the issues raised by the Bear Stearns rescue and the current financial crisis."

He said it was unrealistic of Treasury to raise the possibility that access to the discount window for investment banks might only be temporary and therefore they need not face more stringent regulatory oversight on a permanent basis.

"Access to the discount window is by its nature temporary. You only do it when everything else goes wrong and it's a last resort," Goolsbee said. He said that would not prevent the kind of behavior that puts taxpayers at risk.

He also criticized the Treasury report's suggestion of delegating to the industry some regulatory powers now handled by the SEC and CFTC.

CAN ACCESS TO THE DISCOUNT WINDOW FOR INVESTMENT BANKS BE

TEMPORARY?

"We have seen that in a moment of crisis, institutions that never anticipated being able to access the discount window, like investment banks, have been given access. Their behavior has not been subject to the kind of oversight required to protect taxpayers from these institutions taking excessive risks with, ultimately, the American people's money.

"Even hardened free-market types know that you cannot set up a situation where we know that if everything truly goes wrong, we will once again open the discount window but not keep an eye on your behavior in the run-up to that time."

DOES OBAMA HAVE A VIEW OF WHAT IS TOO BIG TO FAIL?

Goolsbee said this would need to be decided by the next president and Congress in consultation with regulators and financial experts.