CHICAGO (Reuters) - President-elect Barack Obama promised on Thursday to strengthen financial regulatory agencies and crack down on runaway "greed and scheming" in an effort to restore stability to a reeling U.S. economic system.
Obama named veteran regulator Mary Schapiro as chairwoman of the Securities and Exchange Commission and Gary Gensler to head the Commodity Futures Trading Commission. The president-elect said he would charge them with leading a broad overhaul of the financial regulatory system.
"These individuals will help put in place new, common-sense rules of the road that will protect investors, consumers and our entire economy from fraud and manipulation by an irresponsible few," Obama told reporters in Chicago.
"These rules will reward the industriousness and entrepreneurial spirit that's always been the engine of our prosperity, and crack down on the culture of greed and scheming that has led us to this day of reckoning," he said.
Obama also named Georgetown University law professor Daniel Tarullo to fill one of the seven seats on the Federal Reserve Board, which is battling to ease a credit crisis and fend off a deepening recession.
The SEC, created after the 1929 stock market crash to police markets and restore investor confidence, has come under heavy criticism after the Wall Street meltdown and financial scandals exposed lapses in its oversight.
The collapses of investment firms Bear Stearns and Lehman Brothers prompted scathing criticism from lawmakers who said the agency, charged with monitoring publicly traded firms, should have flagged the problems earlier.
Criticism has intensified with the $50 billion investment fraud -- one of the biggest in history -- allegedly carried out over many years by Bernard Madoff.
"We have been asleep at the switch. Not just some of the regulatory agencies, but some of the congressional committees that might have been taking a look at this stuff," Obama said.
Obama, who takes office on January 20, said regulatory reform would be one of his earliest initiatives and he would release a detailed plan for regulatory changes. He said there was a need to potentially consolidate some regulatory agencies.
Under one scenario backed by some lawmakers, the SEC would be merged with the CFTC, which oversees the markets for instruments such as futures contracts and options on oil, coffee, sugar and other commodities.
"We are going to have to greatly strengthen our regulatory apparatus, and update it from what worked for a 20th century financial system, so that it works in a 21st century financial system," Obama told reporters.
"I think the American people right now are feeling frustrated that there's not a lot of adult supervision out there," he said.
Schapiro is now chief executive of the Financial Industry Regulatory Authority, a self-regulatory body for the securities industry. She was an SEC commissioner for six years, then became chairwoman of the Commodity Futures Trading Commission in 1994 during the Clinton administration.
Schapiro, a lawyer, is a member of the board of directors of Duke Energy Corp and Kraft Foods Inc. If confirmed by the Senate, Schapiro would replace SEC Chairman Christopher Cox, a Republican appointed by President George W. Bush.
Gensler was a partner at Goldman Sachs for a decade and was undersecretary of the Treasury in the Clinton administration.
Tarullo, Obama's choice for the Fed, has been one of Obama's top economic policy advisers. The 57-year-old Tarullo was President Bill Clinton's top adviser on international economic policy. He would replace Fed Governor Randall Kroszner, whose term expired in January, in a move that still leaves two vacancies that Obama can fill.
Obama is hoping to complete most of his Cabinet picks by the end of the week, leaving Chicago on Saturday for a vacation in Hawaii with his family.
He has tapped former Dallas Mayor Ron Kirk, a partner at Houston-based law firm Vinson and Elkins, to be U.S. trade representative, a source familiar with the decision said.
For labor secretary, Obama has selected California Democratic Rep. Hilda Solis, a Democratic official said on Thursday. Democrats said Ray LaHood, a Republican congressman, has been chose as transportation secretary. LaHood has a rapport with the Democratic president-elect and hails from Obama's home state of Illinois.
These announcements are likely on Friday.
Writing by John Whitesides; additional reporting by Rachelle Younglai and John Poirier in Washington, Gina Keating in Los Angeles and Emily Chasan in New York; Editing by David Wiessler and Frances Kerry