UPDATE 1-Whouse's Romer: US economy has 'been through hell'

(Adds further comments, background)

WASHINGTON, Oct 20 (Reuters) - The U.S. economy has “been through hell” and although swift government action averted an even worse outcome than what has been seen, more work is needed to avoid future crises, a top White House economic adviser said on Tuesday.

“To put it bluntly, in the year following the collapse of Lehman Brothers, the American economy, and American workers in particular, have been through hell,” Christina Romer, chairman of the Council of Economic Advisers, said in a speech to an economics club dinner.

With U.S. unemployment at 9.8 percent and likely to rise further, she said it was important not to pull the plug too quickly on economic supports. It makes sense to plan now for how to remove the government’s emergency measures, but acting too soon would risk “nipping the nascent recovery in the bud.”

Companies have cut jobs aggressively during this recession, driving up productivity and contributing to healthy corporate profits. But even though the economy probably resumed growth in the third quarter, job losses continued to pile up.

Romer said it would take economic growth greater the normal trend of around 2.5 percent in order to begin bringing down the jobless rate.

Romer, an economic historian who has studied the policy responses during the Great Depression of the 1930s, said policy makers had wisely avoided many of the mistakes made during that period and praised them for their swift response.

But she said modern policy makers “risk being less forward-looking than our predecessors in the 1930s” in one key area: regulatory reform.

She stressed the need for higher bank capital requirements to ensure firms have enough of a cushion to absorb losses; new authority to allow regulators to safely shut large nonbank financial institutions that fail; and a new oversight structure with the Federal Reserve in charge of regulating all financial firms whose failure could threaten financial stability.

All of those are elements of the regulatory reform package that President Barack Obama has proposed. A U.S. congressional committee has been trying to hammer out a reform proposal this week, although it remains to be seen whether Congress will pass legislation before the end of the year.

In response to a question about whether lobbyists were pushing back too hard against some of the administration’s regulatory reform proposals, Romer said the White House was “up to the fight.” (Reporting by Emily Kaiser; Editing by Leslie Adler)